Most traders view new highs one of two ways:
- Buy a market that’s performing better than ever!
- Sell a market at its greatest premium ever!
Last week, Small Stocks posted new highs for the last decade, natural gas did the same for the last decade, and Bitcoin blew out highs for the last several months to the tune of a 35% rise since September 29th.* So, should you buy or sell?
Highs in Stocks, Natural Gas, and Bitcoin
Source: Yahoo! Finance (https://finance.yahoo.com/) and dxFeed Index Services (https://indexit.dxfeed.com)
Bitcoin’s Price (Re)Action at Highs
How a market has historically traded at highs could help in deciding on a strategy once they’ve made new highs. Bitcoin poses an interesting trend, whereby it moves lower in the days following a high but extends much higher afterwards, on average.
This type of price action can pose an interesting contrarian play for traders in the short term and trend trade for those looking through a long-term lens. Though the jury’s out on the next month of movement, Bitcoin did in fact reverse after last week’s highs.
Bitcoin’s Price Risk at Highs
But averages aren’t guarantees. Contrarians and trend followers alike should assess the risk around these averages, which is thousands of dollars.
The amount of risk doesn’t necessarily sterilize the edge that the averages might present, but, rather, it can be a reason to lessen your exposure to the edge.
Looking for a new way to trade stocks, commodities, and foreign exchange? Sign up for in-depth analysis on products that are small, standard, and simple from the Small Exchange: https://go.smallexchange.com/IBKRTC
*Futures data from Yahoo! Finance (https://finance.yahoo.com/) and dxFeed (https://indexit.dxfeed.com) as of 10/7/21
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