Explaining Weekend Volatility with Trader Profiles and Psychology
Anyone who’s traded the crypto markets would have noticed that weekends can be quite volatile. Over recent times we have seen some very big moves on weekends with fear and greed taking the market to extremes. The weekend just passed is a great example, where we saw big moves in Bitcoin and Bitcoin Cash amidst great hype of “The Flippenning” occurring. This volatility rocked the alt-coin market but come Monday morning everything settled back down. This sort of weekend volatility has been going on for a while.
It’s not hard to see the pattern here. Most major highs and lows on the Bitcoin chart have been happening on the weekends. I have a theory on why this is happening and it has to do with the players who are active in the markets, or more specifically – who are not active.
I break down the crypto market into three main demographics of trader. I believe that if you understand the psychology of who is active in the market then you have a much better chance of anticipating the next move. Much like Warren Buffets imaginary ”Mr Market” I think for crypto markets there is actually three of them.
Bitcoin was only invented in 2009 so anyone who calls themselves a ”Crypto Trader” by definition only has at most 8 years experience. I am talking here about the real pros who cut their teeth on trading stocks, bonds, currencies and/or commodities over the course of perhaps decades. These people are not only experienced but they have realised a key to success is to keep emotion out of their trading. They are cool and level headed. They understand how markets work and they can tell when a market is overbought or oversold and they will move in at the extremes to take advantage of situations where the market is getting carried away. They are often very good technical traders and know the patterns and signals to watch for, so they are very good at identifying and following trends. If they have a weakness, however, it is in the understanding of the underlying technology of crypto. If they’ve been trading for 20-30 years they are used to the status-quo of what has worked in the past so they might not see that big paradigm shift coming.
These are the people who live and breathe crypto technology. They could be IT professionals who have nice big pay packets in a regular 9 to 5 job and they can understand the power of crypto and how it is going to transform society. They’ve read up the whitepapers of different coins and tokens and they understand the use cases and niches that each crypto is targeting. They can identify when a new ICO is doing something truly new and innovative and can spot the scams, the flaws and even the poor implementations. These are the people who can see that big paradigm shift coming, but if they have a weakness it is that they may not understand how markets and finance really works. They can be influenced by emotions with loyalty or belief in certain coins or communities which can impair their judgement and lead to bad investment decisions when the market goes against them.
These people in my opinion are the scourge of the crypto markets. People who are smart enough to realise that crypto is an opportunity for fast wealth, but they often don’t really understand the technology behind it or how the markets behave. They are the ones you hear talking about ”Lambo Coins” as if just investing blindly in a new hyped up coin is going to deliver them untold riches. They are fickle and are quick to move in and out of coins that might be getting hype about being the next big thing. They are usually the ones who fall for the scams and are often found loudly promoting referrals and trying to drag others into their investment. You will find these people getting involved in the pump and dumps, making them bigger on the way up and bloodier when they rush the exits. They are very noisy and like to share their ”Wisdom” when they buy up and things are going well, but they often go quiet when they sell or are making losses.
You may have already put two and two together but now that I’ve outlined the three main trader types I see, the weekend volatility dynamic can be explained as follows.
The Professional Traders are used to trading when traditional markets are open. Business hours Monday to Friday. They know it’s not wise to try and trade 24/7 and they need a break to stay fresh. They will often exit position on a Friday afternoon and take the weekend off. They are the ones who typically provide trend support and stability during the week and they are absent on the weekends.
The Technology Gurus and the Fast Cash Chasers are more likely to be part-time traders with regular jobs and may actually step up their trading activity on the weekends. They are the ones who are more likely to fall victim to their emotions and be driven by fear and greed. I believe that is why we see big mania rallies and panic selloffs on weekends – this is the market getting carried away by its emotions and the Professional Traders are not there to keep sanity.
If you’ve made it this far I will share one more theory with you. It is possible that last weekend the Technology Gurus were signalling a paradigm shift from BTC to BCH. A shift that perhaps the Professional Traders do not see and so through the week they have effectively masked it by re-enforcing the existing ”BTC Dominance” trend when they re-entered the market on Monday. It will be very interesting to see if there is a similar shift from BTC to BCH this weekend coming as the Technology Gurus may reassert themselves once the Professional Traders clock off.
Images and Credits
https://coinmarketcap.com
http://pitzlfinancial.com
https://2ndskiesforex.com
https://accidentalhindu.blogspot.com.au
http://www.lottspace.com
http://www.nicolevaidosa.com
I think it's simpy that weekend market is thin and so more easily manipulated.
I'd say that is also true. Though is it possibly thin because the Professional Traders are not present?
Then again we have seen some very high volume on these weekend moves. Not sure if it is typical to see high volume in a thin market?
I think istitutions and professionals embraced 24/7 crypto market by now. Also, they heavily relate on bots and trading algos - more than casual folk. So, i wouldn't be so sure who is present at market on weekends.
Thin in terms of organic volume.
Personally I think the influence of bots and algos is overstated. They are just tools and I'd expect most would still need some babysitting or dead mans lever and so they might not be running on weekends.
Professional Traders are certainly present 24/7. Traders without a strategy who are just getting into it maybe.
Sitting at home on the weekend and they can't help but move some coin out of sheer boredom
The thing here is that the "weekend" typically overlaps into fridays and mondays due to how time works in the world. we may only have a 30 hour window of pure "weekend" time every other hour might be a monday morning or a friday night elsewhere in the world.
Regardless this was a great article. I love the break down of three different stereotypes.
Thanks. Glad you enjoyed the article. I agree there is "pure weekend" time and then there is "shoulder weekend" times where some parts of the world are in business hours while others are not.
I'd not actually considered these crypto trader types and their day jobs, but yes, I think you might be on the money with this one.
Thanks. I have been stewing on this theory for a while but there is no better test for its validity than putting it out on the internet to see if it gets torn down. So I appreciate your support :)
I think Roger Ver picked his timing.
As soon as Segwit 2 hit the cutting room floor, he and his mates started dumping btc and buying bitcoin cash, trying to manufacture FUD on the former and FOMO on the latter.
At least, that's my theory.
Yes, you might be right. Though it did take a little while for the FUD/FOMO to get going and it really didn't go berserk until the weekend. I was able to get some BCH at around $600 which was after SegWit2X was cancelled but before it really took off. If your theory is right then you'd expect it to have been a premeditated move straight after the announcement? Maybe both of us are kinda half right :)
I cashed out all of my BCH to buy a big stack of shiny silver coins. I regret nothing :)
Oh Matt... 🤦
I recommend an advanced hodling technique known as laziness. I still had (and have) all my BCH from the fork. So far so good.
Laziness and Efficiency are just two sides of the same coin.
I like coins :)
Love this. Laziness as a HODL strategy. I might use that myself :)
Hmm, maybe I should run a course in it. I give you good price!
I was not so smart…: as a noobie, I was quite hypnotized by the BCH flying to heaven …and I bought some, but too late. It’s seems that I am the perfect pump and dump victim. Let’s see if I am less stupid next time, and if I really do what I had decided to do when I bought my first bitcoin : save some liquid cash, absolutely exempt. And going on with my job, which has nothing to do with trading…
You have to earn it before you can invest it. Sorry you got stung there, mate.
I bought a big chunk of SP only 5 weeks ago, when bitcoin was around US$4K.
If I waited another couple of weeks, I could have had almost twice as much bang for my buck.
Some days you're the rabbit, some days you're the carrot.
From talking with Forex traders it's pretty common for the market to dip at the approach and during the weekend as people take profits for spending on weekend activities.
Absolutely. In traditional markets I love the last hour of trade on a Friday afternoon. The profit taking reversal is a regular feature.
This is actually quite funny. I know a few Fast Cash Chaser. But I'm helping them see the tech behind crypto and why it's best to HODL. :P
Well I'm not convinced that HODL is the way to go either, but I'll admit it's been a great strategy for 2017 so far!
Interesting read, potential description of weekend volatility
Great article, I hope to see you writing an article about long term investment methods for beginners, many people are looking for these types of guides and I believe that you are capable of making a great article which explores that topic
Thanks. I'll give it some thought though it does feel like lots of people are writing about generic crypto stuff for beginners so I am trying to find a bit more specialised niche.
That is true, although I believe that if you wrote a concise article on the topic it will become popular and promotod well
judging by the schedule, and there is a double top. I think there will be a deep correction to the area of $ 5,500, do you think this is possible, given that China wants to turn off the Sichuan province from electricity for the mining farms, and there is known to be concentrated a very large part of the bitcoin hash. This could negatively affect the price in the short term. In advance I apologize for the text, I'm from Russia and I have bad English
It is hard to say. In the hypothetical situation where a heap of Chinese miners get shut down then the hash rates of both BTC and BCH would drop. That would slow block times until the difficulty level adjusts. Probably more harmful to BTC because of their current congestion issues, but it'd affect BCH too.
I also think about organizing a monopoly on the BCH coin as the complexity of mining is high and there are not such capacities for small miners, these coins are mostly owned only by large pools such as there are in China, I noticed the transfer of funds from BTC to BCH is obtained when China does not earn on bitcoin they earn on BCH is a kind of hashing of risks. It seems to me that BCH will be traded at about the same price in the future with bitcoin
Great info thanks for sharing
I'm into trading as well because I trade Forex and started studying trading Bitcoin/cryptocurrency. The market is VERY Volatile and right now in a strong bullish market with a bit of consolidation.
I just followed you, so hopefully you can give me great insights on the continuation of trading crypto.
Thanks, I'll do my best!