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.

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1. The Professional Trader

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.

2. The Technology Guru

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.

3. The Fast Cash Chaser

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.

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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.

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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