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Understanding correct decision-making in trading

The main focus of today's lesson is understanding all the elements of correct decision-making in investing and trading. This includes:

• Understanding the key components.
• Weighing these components in relation to one another.
• Building a case for your decisions.
• Making emotionally balanced decisions based on your case.

This lesson ties into actual analysis and psychology, and it's going to help you significantly if you apply these concepts and this mindset.

The Prosecutor and the jury analogy

Who are we as traders? In this analogy, we are both the prosecutor and the jury. Imagine you're a lawyer in a case trying to convict a felon. You need to convince a jury that your case is correct, and you do this by accumulating as much evidence as possible.

Similarly, as traders, we need to gather evidence to convince ourselves why we should invest or take a position in an asset. We are both building the case and judging it.

Elements of a case

Let's break down the elements that we, as traders, need to consider:

1. Motive (Macro sentiment)

   • Just like a lawyer looks for a motive behind a crime, we need to understand the macro environment. The macro bias and sentiment are crucial because big players (smart money) make decisions based on the macro view. If we understand the macro environment, we can better position ourselves.

2. Witness statements (Fundamental catalysts)

   • These are more tied to asset-specific factors. For example, events like the Bitcoin halving or the introduction of an ETF can serve as catalysts. These events influence the market and increase demand for the asset, driving prices higher.

3. CCTV (On-chain data)

   • With the transparency of crypto, we can track data on-chain to understand where we are in the cycle. This helps in making long-term decisions and knowing when to hold or offload profits.

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DNA (technical analysis and market mechanics)

• This is like the smoking gun. Technical analysis (TA) helps us look for entry points and trade levels. While important, TA should not be the sole focus without considering the other factors.

Balancing the weight of these elements

Everyone has their own style and may put more weight on certain elements. For instance, if you understand macroeconomics well, you might focus more on macro factors. Conversely, if you trust your TA skills, you might lean more towards that.

Regardless, it's crucial to know all the elements and have a good understanding of each. Figure out who you are as a trader or investor, hone your skills, and work on your weaknesses.

Building a strong case

To build a strong case, you need to:

• Start from the top with macro factors.
• Consider fundamental catalysts.
• Use on-chain data to understand the cycle.
• Apply technical analysis to find entry points.

Practical examples

Let's look at some practical examples to illustrate this:

Solana trade example

• We started by understanding the macro environment. The Federal Reserve's efforts to bring down interest rates to stimulate the economy created a favourable environment for risky assets.
• We identified fundamental catalysts like Bitcoin's ETF and halving.
• Technical analysis using Fibonacci retracement showed a 61.8% retracement level, which we used to time our entry.
• We saw resistance levels being tested, which validated our decision to enter the trade.

Ethereum trade example

• The announcement of Ethereum's ETF influenced our decision.
• We identified a significant support level of around $2,900-$3,000.
• Using Fibonacci retracement, we found that the 61.8% retracement level aligned perfectly with our support level.
• Despite the uncertainty, we managed our risk and built a case for entering the trade based on the overall market sentiment and technical analysis.

Cryptonary's take

Building a case in trading involves gathering evidence from various sources and aligning it with your strategy. This method helps you make well-informed and balanced decisions. Remember, there's always a chance of losing, so managing risk is crucial.

In future episodes, we will explore our tools and factors more deeply, such as identifying key levels of support and utilizing Fibonacci retracement. This is just the start, and I'm excited to grow and build on this with you.

Thanks for watching. If you have any questions, feel free to ask in the Traders Field community. Stay tuned for more episodes of Free Game Fridays.