I was talking to a colleague this morning and I told him I feel as if I do my best analysis when I'm writing about exactly what I'm doing in the market.
So today’s post is about Solana and why I’m closing my entire position… at least, for now.
Solana has been my largest and most profitable investment of the current cycle. It’s made up over 50% of my crypto exposure for the past 12-15 months.
But I’ve sold just about all of it over the course of the past few weeks.
As most of you know, I try to invest alongside the primary trend.
I got into the trend reversal on time, and now, I feel it's time to leave the party. With each passing day, I feel more and more like I’m overstaying my welcome.
Here’s what SOL looked like when I added the bulk of my bull market exposure over a year ago:
My cost basis in the trade is around 30. That is exactly where the primary trend flipped from sideways to higher.
You don’t need any special tools to measure this kind of thing. It is shown above with a rounding bottom reversal to new highs, confirmed by the 200-day moving average turning higher, and momentum shifting to a bullish regime.
Those three things should always keep you on the right side of the long-term trend.
Here’s what that same chart looks like today:
It is printing a clear short-term distribution pattern after failing to reclaim the prior-cycle highs.
However, if we apply the same logic that got us into the trade in reverse, it’s a little more complicated.
The 200-day moving average is still sloped higher and momentum is still in a bullish regime.
As for a primary topping pattern and clear breakdown level, I don’t think we get that until about $130. That’s another 50 points lower.
The evidence we use to enter is different from the evidence we use to exit. You can’t just flip the same analysis on its head. You have to think like a trader.
This has been a great trade. Why would I risk another 50 points when I’m already in a 35% drawdown from November’s highs?
The bears are in control of the short-term trend and key support levels are breaking. Downside risk is growing.
Let’s zoom in now:
Tactical top. Back in the box. Bear trap pop. Stuffed at the WAP. Blasted stop. Follow-through drop?
If we break this VWAP anchored from August 5th, the current action suggests we revisit the lows from this summer. That would be another 30% of downside.
Here, at the upper bound of this range, I’m closing my trade for a 6-7x profit. If I let it ride and wait to stop out at the lower bounds, it becomes a 4x.
These are things I think about. Every trader should. Only you can protect your gains. They can disappear in the blink of an eye. Crypto is a high-volatility, event-driven market. It is prone to flash crashes and massive drawdowns. SOL could be down 20% overnight. When bears have control of the tactical trend, bearish things have a higher probability of occurring. Is the risk/reward situation still in my favor?
The biggest reason why I’m not going to risk another 30% of downside from here is simple.
And I can’t be more clear about this. Too many investors forget it.
IN THE EVENT I AM WRONG, I CAN CHANGE MY MIND, AND BUY IT BACK.
There is no place for ego if you want to consistently take money from the market. Being right or wrong means nothing. We are here to make money.
I sit here and sell Solana with the hope I am wrong. In the event I am right, the bull market is probably over, and I will be moving to cash and staying there for some time. I might have to wait years to get long crypto and make bull market money again. That’s a bummer.
I would much rather be wrong. Buy my position back above the ATH VWAP and make another 100% or more. If this turns out to be the case, I’ll be making a lot more money in my other accounts as well. Trust me, I would prefer to be wrong on this call.
But this isn’t about what I want or what is good for me.
I’m just here to take what the market is giving. I feel like it’s in a less giving mood of late, and I’m happy to sit on the sidelines until it figures it out.
In the event this bull market has come and gone, and another crypto winter is upon us, I’m happy.
I made hay while the sun was shining. That’s all I’m trying to do each cycle.
We are hosting a special twitter space this afternoon to discuss this.
I’ve invited some of my smartest and most bullish friends to play devils advocate and talk me out of selling my SOL.
I doubt they will though.
The way I see it, the market can have my SOL. I’m just trying to keep my money.
