Weak Hands, Spinach Hands
Every time there is a market correction you see these expressions flying around on every social media platforms. Weak hands are selling, spinach hands are selling, diamond hands are holding etc. HODL-ers like to say these things to highlight they are hodling. But are things really so simple? Is it all panic selling? Are only weak hands selling?
The Big Red Candles
Every now and then we see long red candles, which means massive selling. This is a daily BTC chart on Binance and those long red candles are quite scary. Those are the times when the price crashed heavily. The last one was the scariest, if you look at the candles, there's one week, from 12 May to 19 May, 6 days of red candles.
Thar is a 48% correction in roughly one week. It's scary and no one wants that but this is crypto, a free market or so they say. So let's see what's happened.
I bet there are a lot of users who are keeping their BTC or any other cryto assets on exchanges as they don't have enough to move it to a cold storage, or they just want to be ready to sell, when the time is right or when cash is needed. These users can't really be called traders.
Then there are traders, who are also keeping their crypto on exchanges, but in a different way.
When technical traders are entering a trade, they know exactly where they want to enter, where they want their stop losses and where they want to take profits. This is the only way to work, if you want to minimize the risks. Charts are giving you the information needed and most of the time it works.
But there are times, when it doesn't as market makers have other plans.
Weak Hands, Spinach Hands
Stop loss always comes under previous low (that is very simplified) and as the price moves up, you move your stop loss up accordingly, to minimize risks but also to make it risk free and take profit in case something happens.
When market makers decide to step in, they usually want to try send the price to a zone convenient for them. So when the price starts to crash and hit those stop loss zones, those positions get liquidated. This is how it works. Does that mean that traders panicked and sold? No, far from it. This means they get stopped out but many make profits too as stop losses are moved up.
This can't be called weak hands or spinach hands selling. This is a system set up to protect your assets and if you're using it right, you can make profits, but can also turn against you, if you don't know how to use it.
So those long red candles represent not only panic selling, but also stop losses hit and leverage positions liquidated as well. I'm not going to go into details about leverage as I only know the basics, have never done it and chances to do it in the future are slim to none. I'm not interested in gambling with my money.
This system is valid for short positions as well, just working the opposite way.
If we go back to the first chart and look at the last crash, in retrospect, many would have wanted to be stopped out of the market at the top, to have cash to buy back when the downward rally ended. Especially those who bought at the top. This is not weakness, not weak hands. It's the right thing to do. Better lose 5% then half of your assets.
After the 50% crash, if you hasn't been stopped out, you have to option. Either hold till price action gets back to a level where you can make some profits (it could take months by the way, or even a year), or sell and lose half of your money.
So it would be interesting to know how much of these selling are actually panic selling but I guess we won't know ever as there's no statistics regarding that.
Market makers know how this game works and also know how to get what they want. The 20k level is still valid. Let's see when it happens, if it happens.
Posted Using LeoFinance Beta
