This past week, there were several interesting examples of "non-crypto" market panics and rebounds that perhaps can serve as a lesson and reminder to others. These lessons are equally applicable to the crypto markets. You'll also notice that these moves often take place at odd hours (completely "out of the blue", just like late Friday night / early Saturday morning crypto moves often seem to do). I mean, for fellow steemians who were "foolish" enough to sleep through the weekend, just look at all the "excitement" you've missed! This is what makes such moves all the more tricky to capture early on.
BUT if you're there at the right time, "Chance favors the prepared mind" (as Louis Pasteur once said), the early bird catches the worm, and you can make out with some seriously fast, satisfying, and relatively low-risk opportunities for profit. Notice how my post last month about the STEEM flash crash turned out to be THE EXACT LOW prior to the current STEEM bullish move. I tried to convert my extra SBD at that low and just missed catching sub 0.07 prices by literally seconds. I seem to be getting a bit slower on the trigger in my advancing years. I didn't want to chase or pay up. My mistake, though SBD is actually still worth way more than $1 USD right now as well.
I mean, if you really think about it, imagine living in India, Venezuela, Greece, or any other number of countries where actual dollars are practically impossible to get after their respective governments hyper-inflate, block bank withdrawals, or outright cancel everyone's currency. Well, except for government officials and their well-connected "friends", of course.
However, for those computer-savvy and enlightened enough to know about SBD, those dollars could be worth 10x what they are to us living in (for now at least) more stable countries. And if they explain to their local grocer that they can "secretly" send them a form of hard-to-steal crypto USD trading at a premium, they may just be able to weather the storm and comfortably feed their family 'til the crisis subsides.
Anyway, back to the original topic. I captured several screenshots from my platform, tymoraPRO tradeSCAN, to demonstrate.
The first move is the hard and fast crude oil drop that capitulated on May 5th, 2017. I've included 1 minute, 3 minute, 5 minute, and 60 minute timeframes for analysis. But notice how the final move took place right around the Asian open, where the extended move likely caused an avalanche of stop and sell orders to trigger massive levels of margin calls. Just like in crypto trading, when the SHTF, even in the most liquid of markets, liquidity completely evaporates, and any stops you might have don't mean a darn thing. If anything, they may have acted as collective shark bait that helped fuel the panic in the first place, since many traders tend to place their stops all around the same price levels.
And none of that even considers "exchange issues" that always seem to crop up at the worst possible times (especially frequent with crypto exchanges). If you're way over leveraged, watch out, you're in deep trouble. If you're lucky, you'll wipe out only your margin deposit. At worst, well... here's an unfortunate short-selling debacle story for you... "Devastated" Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call.
Once all the weak hands have left the building, however, it's often almost a smooth and steady crawl back up, as the float is sucked up by the whales and other well-established players. As of the end of the week, crude drifted even higher to close around 46.50.
The next example is InvenSense (NYSE:INVN). Thursday evening (May 5th, 2017) it came out that Bosch Said to Win Some IPhone Orders in Blow to InvenSense. Ordinarily, this could be terrible for the stock, and the immediate 5% drop post-market reflected that. HOWEVER, even though the Bloomberg article does mention it, traders seemed to either over-estimate, or were still mostly unaware that TDK is already in the advanced stage of a $13/share buyout of INVN. Let's just say that fast buyers who managed to catch some of those low bids made out like bandits by next morning's open. Within the first half hour of trading, INVN had rebounded over 5% to as high as 12.88. Not bad, considering this blogger was adding to his position at an average price of $12.88 earlier that day. Talk about luck, welcome to trading! I just hope he managed to catch some of that temporary fat-finger discount to really pump up his average return.
The drop represents a good opportunity to profit from a short term arbitrage merger play with little risk. Although the merger price may not be high historically but it is still nearly 70% higher than the price before the merger rumors started to spread. I believe shareholders will not be willing to go back to a sub $7 price by rejecting the merger. Already, about 14.5% of shares owned by Invensense executives and officers will be voting for the merger. Major institutional owners like mutual funds and ETFs should also be voting for the merger so a simple majority is achievable. Current returns at price of $12.89 is still a good return for a merger that will be closing within less than a month and I had since added new positions at an average of $12.88. Any price I can get lower will boost my returns for little risk.
Link: MergerPie: Added INVN and TRCO
Final Thoughts
I must have read "Reminiscences Of A Stock Operator" a dozen times over the years. I'm probably due for another "visit", since almost every time I read it, I find something new that resonates as experience accumulates over the years. For those who are relatively new at trading, if you haven't yet read it, perhaps you'll find it insightful for yourselves as well. Here's a PDF copy I found online that you can check out for FREE:
https://archive.org/details/JesseLivermoreReminiscencesOfAStockOperator
I'll end with a quote from @happyphoenix 's profile:
"Wisdom tends to grow in proportion to one's awareness of one's ignorance."
Ironically, sometimes in trading, ignorance at the right time can truly be bliss... BUT ONLY if you learn to control your risk, and not overstay your welcome before it's too late!
And remember, while you can't control what happens on any given trade after you "pull the trigger", the one thing you can always control is your risk and position size. It's not about how much you can make, but HOW MUCH you are risking that counts. Focus on managing your risk on a well planned strategy, and the rewards will come in their own due course.
Note: You can view the charts in much higher detail if you right-click and select "Open image in new tab".