The Laws of cryopto markets.

26 Apr 2023

Law #1
All markets are inherently Fractal. Markets have many patterns. Fractals are similar in different instruments, different timeframes, and even in different time periods. Whether you look at a monthly chart or a 1-minute chart, the same principles and patterns work everywhere. If you remove the ticker or symbol of an asset and the time frame from the chart, you will hardly be able to determine the chart of which instrument you are analyzing. All markets move according to the "Russian Matryoshka" principle: balances within balances, ranges within ranges, transitions from one pattern to another.




Law #2.
At a certain point in time, markets are either in balance or moving in a trend. Markets can only be in one of these two states.
So what is balance, or as I sometimes call it, range? Financial Markets have long been designed to create a "bargain." In a balance sheet, buyers and sellers determine some kind of value for a commodity or trading instrument. It is in the balance that buyers and sellers come to a common denominator or agree on the valuation of the commodity they are trading. In a trend, on the contrary, both buyers and sellers disagree on the price and move away from the previously agreed value of the commodity. The reason for this can be anything: supply and demand, news background, some rumors, fundamental changes or whatever. Something has caused the price to get out of a certain balance. The value of the goods has changed, and if it has risen, it means that the buyers have become much more aggressive than the sellers, or vice versa. More aggressive means that buyers, for whatever reason, are willing to pay more than sellers offer. These "transactions" and aggressive transitions move the world markets until both buyers and sellers agree on the value of the commodity again. Then the "flat"/balance starts again, then the trend, and then the stop and balance again.
It is very important to understand that getting out of a Grand Balance creates a big trend. Understanding this can bring you either big profits or big losses if you start trading against such a trend. Trends and balances move in the dynamics of the markets and the matryoshka structure. This is what creates the context of the market.




Law #3.
Price moves in a series of impulses and corrections. It never flies up in a rocket (except for dumps on crypto or low-liquid assets), and it never rocks down (dumps on crypto). The move starts with a directional move and then stops at a point called a swing high on an upward momentum. After that, the price begins to move in the opposite direction. This is called a correction or "balancing" if price corrects against the trend. Often price also corrects over time or horizontally when the momentum "cools down," creating a horizontal balance or rerun, but not giving any correction to keep traders out of the trap
Even if sometimes it seems that on a large timeframe price is moving in a straight line upward, when you approach the 15-minute timeframe, you can see that price is going impulses and corrections.




Law #4.
Price takes all information into account effectively, but not perfectly. This "law" is one of the most controversial in trading, and the least understood. As a rule, market participants cannot find a common denominator in explanation of this rule. On the one hand there are supporters of the hypothesis of the market rationality, according to which the price instantly includes all information, news and rumors. They say that the price instantly reflects everything that is happening in the world from details to global fundamental changes.
But if it were true, then it would be impossible to be a profitable trader in the market. From my experience I am willing to argue with this, and there are so many traders who are making huge money in the market contrary to the rationality of the markets. In reality, markets are actually rational, price does include all information very quickly, but market participants are quite far from being rational. Very often the emotional characteristics of market participants cause the price to move too high or too low in the trend direction contrary to the real price of a particular asset. Greed and fear (FOMO-fear of missing out) can often be to blame. Of course, sooner or later the price of the asset will come back to its real value, but the fact is that markets are not entirely rational. That is sometimes the best opportunity to raise good money in a trade against the "crowd."