The Profit Column: Get Comfortable with Shorting (and Bitcoin)

By TradeSmith Research Team

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Ready to learn the ultimate source of every move in every financial asset in the world?

It’s not earnings reports, or the morning’s headlines, or even Jay Powell and the Fed with their infernal rate hikes.

The truth is, it’s just buyers and sellers.


Don’t be.

Once you understand this fundamental truth, the game of investing breaks wide open — and every day begins to present a potentially game-changing profit opportunity.

William McCanless has devoted himself to this core trading philosophy. At the end of the day, all he wants to know is who’s trading what, when they’re doing it, the price they’re doing it at, and if they’re doing it right now.

The “when” may be the most important. That’s where William incorporates seasonality — the study of historical patterns in investor behavior.

These patterns, with enough data, begin to manifest on stock charts. And once you can pinpoint the precise periods where individual stocks are set to rise or fall, you have a near-unbeatable edge on every other trader playing the game.

William is a testament to this. Of the 12 positions he’s recommended since mid-September, all but two were winners. And all but three were bearish trades designed to profit as stocks fall.

That includes wins of 32% and 78% in about a week on QQQ, and 67% in less than four weeks on CHD.

And during his pre-launch beta test earlier this year, William also scored a 102% gain trading against AAPL and 28% on NVDA, both in less than a month.

Just recently, though, he identified a profit cycle emerging in bitcoin that landed him and his readers a 23% gain in just under three weeks.

I sat down with William this week to discuss the trade as part of our weekly Profit Column. But the conversation — starting with the short term — evolved into a longer-term cyclical trend that every investor should be aware of as we enter 2024.

The Profit Column: Getting Comfortable Shorting with William McCanless

Michael Salvatore, Editor, TradeSmith Daily (MS): William, thanks so much for joining me today.

William McCanless, Editor, Trade Cycles (WM): Happy to be here, Michael.

MS: So let’s just dive straight in. I know you just posted a big, quick gain on the ProShares Bitcoin Strategy ETF (BITO) for your readers. About 23% in 20 days.

And this at a time when it seems like very few people are even thinking about bitcoin.

How did this come about? And more broadly, why are you so focused on short-term trading?

WM: I want to start with that second question, because it’ll help lay the groundwork of what I do as a trader.

There’s this misconception out there that “timing the market” never beats “time in the market.” I get why people want to believe this. Passively investing in stocks over the long-term sounds like a great move. It’s easy and feels safe.

But times like now prove that learning how to time the market can make a huge difference.

The S&P 500’s down over 9% from the high at the end of July, right? That’s painful. If you’re relying on “time in the market,” you’re not seeing any profits. You’re just sitting patiently until stocks hopefully recover, losing wealth by the minute.

That leads me to a second core philosophy of my trading strategy: shorting the market isn’t difficult, and it shouldn’t be scary. In fact, shorting the market is where most of our profits have come from these last couple months.

Back in July, I began writing extensively about a coming market downturn to beta testers of my Trade Cycles research service.

I was confident, due to seasonal patterns, that we would see a bearish trend emerge in stock prices as we entered the final months of summer.

While most investors were feeling “extreme greed,” we started shorting all the big tech names and we even shorted oil when everybody was extremely bullish on it — all for a nice profit.

Why? Because despite everyone’s sentiment, stocks go down from July to October most of the time for the last 126 years.

It’s incredibly important to understand that I trade — and everyone should be willing to trade, in my opinion — to the upside and the downside in equal measure.

You should be making money when stocks go down — period. You should ALWAYS be making money no matter what stocks are doing because there is ALWAYS a way to make money in any market environment and the tools are right there for you to use.

Now, that said, there are larger, longer-term cycles that affect different kinds of assets in all kinds of ways. We’re seeing one such cycle in bitcoin now.

MS: Right, let’s talk about that bitcoin trade.

23% in 20 days while the market fell… It sounds like exactly the thing investors can use right now.

What made you think, with the rest of the market falling, that we’d see a surge in bitcoin prices at the same time?

WM: So, I’ve been personally following bitcoin since it was invented in 2009. And when you observe bitcoin’s history, you start to realize that it moves in predictable cycles.

We’re coming up on the halving, which is an important event for bitcoin. The halving effectively cuts the new supply of bitcoin in half, making it scarcer.

This has historically ignited bull markets in bitcoin, in consistent fashion, about every four years.

MS: Yes, I’ve actually been talking about this idea in TradeSmith Daily. [Catch up here.] Let me pull that up.

WM: So, we can see that bitcoin’s next halving is coming up in April. That means we could be headed for a new bull market starting soon.

But this long-term cyclical signal was just one piece of evidence.

The next was the fact that more than half of the entire bitcoin supply hasn’t moved in more than two years. Here’s a chart I shared with my subscribers.

That means it is outside of third-party exchanges, sitting in people’s hardware wallets in their personal custody (which is offline).

This large amount of steadfast holders means nearly 60% of bitcoin is essentially illiquid supply.

So, you’ve got the mining supply being cut in half soon; you’ve got a record amount of people just sitting on their bitcoin; and meanwhile, buying has continued.

Even before I made my recommendation, the bitcoin price was up about 65% year-to-date.

And historically, the month of October is the most bullish month for bitcoin prices. Bitcoin goes up 77% of the time from October to November, with an average 34% return. So it didn’t matter that stock prices historically go down in this period. Bitcoin is a different beast, and it has its own cycles.

That lead me to the last, and most key piece of evidence: the Trade Cycles indicator.

And I’ll just let what I wrote to my subscribers back on October 4 speak for itself…

Bitcoin is also entering a Peak on our Trade Cycles algorithm (orange shading) after bouncing off the largest high-volume node (red and green bars).

This Peak state lasts from October 4 through November 3. So, an almost exact match with the seasonal data.

All in all, I believe BTC prices can break through previous resistance at $30,000 — $32,000 to possibly reach $35,000 during this period.

All this made it a no-brainer to bet on bitcoin prices rising through October. So I recommended my readers trade BITO. That’s one of the simplest ways to trade bitcoin in the stock market.

We now know what happened next. A few weeks later, bitcoin soared past $35,000. And we were able to close our trade for a 23% gain.

MS: Very cool. I’ve been buying a lot of bitcoin myself, but something you said in your sell alert for the BITO position really caught my eye.

You said, and I quote, “I think overall — over the next 12 to 24 months or so — we’re about to see $100,000 to $200,000 bitcoin prices.”

That’s a huge potential gain staring us in the face. At the high end, that’s over a 500% gain on your money from today’s prices.

What makes you think we’ll run this high in the next bull market?

WM: It really just comes down to how bitcoin has historically performed.

Every halving cycle, bitcoin starts a bull run as people get interested in crypto again. People buy it up and push prices higher and higher.

But each time it’s happened, the percentage gains in bitcoin have diminished. The first post-halving cycle saw bitcoin rise 6,000% to the peak. The next cycle saw a 3,000% gain — half as much. The one after that, about 650% — a third as much.

This time around, I think we could conservatively place bitcoin’s price gains at about 150% — or a fourth of the last cycle’s returns. That’d be a triple from today’s prices. And it still takes us to about $100,000.

On the high end of that estimate, we start to factor in things outside the cycle itself. Macroeconomic factors, currency instability, and a lot more could increase investors’ appetite for bitcoin in their portfolios.

Things like that, in an extreme bubble-like scenario, could take the price briefly to the $200,000 area — a 500% return.

I’ll be watching closely for great bitcoin trades all the way through this cycle using the Trade Cycles indicator. Trading into things like bitcoin ETFs when they’re at a Valley and selling at the Peak, and especially if we can leverage that with vehicles like options, should compound our gains much higher than simply buying and holding it.

MS: But of course, you aren’t stopping there.

Your track record shows how willing you are to trade just about any asset in the market — so long as it’s moving — fast — in one direction or another.

WM: Michael, this market provides an endless wealth of opportunities, every single day, to trade assets up and down. It’s all made up of buyers and sellers. Sometimes buyers get the upper hand — and sometimes sellers.

Think of it this way. Even when you think it’s a bad time to buy stocks, that doesn’t mean you should sit on the sidelines. Because all that means is it’s a good time to short stocks.

There’s always money to be made somewhere. Having an in-depth knowledge of seasonality, understanding the technical indicators that show where people are buying or selling, and knowing how to translate this knowledge into winning trades — that’s what helps you find it.

I don’t intend to let stock prices bowl me or my subscribers over. We know how to find the winners, no matter where they are.

MS: That’s awesome, William. I can’t wait to see what you make of the coming bitcoin bull cycle, along with everything else in store for Trade Cycles subscribers.

Appreciate you taking the time today. Talk soon!

WM: Absolutely, thank you Michael.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily