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Takeaway: McCullough: The best way to risk manage a high-volatility asset class like crypto is by using proven, math-based portfolio rules.

Discipline Over Emotion: Keith McCullough on Managing Crypto Volatility - 09.11.2024 Hedgeye tide table cartoon

High-volatility markets like cryptocurrencies can be brutal for undisciplined investors. One day, traders are chasing all-time highs. The next, billions of dollars are getting wiped out. Hedgeye CEO Keith McCullough shared his approach to navigating these wild swings on The Macro Show.

The crypto market recently experienced one of its most significant liquidation events ever, with $2.5 billion in Bitcoin (BTC) positions unwound in just 24 hours. McCullough explained that many traders who chased prices at the top were liquidated—either due to stop losses, margin calls, or panic selling. This kind of chaos is why a process-driven approach is essential.

"The best way to deal with a super high-volatility asset class is to risk-manage it with the rules that you have," McCullough said.

execute a data-driven Process

Discipline Over Emotion: Keith McCullough on Managing Crypto Volatility - 10.03.2024 math book cartoon

McCullough’s strategy is rooted in quantitative signals generated by his proprietary Risk Range Signals, which analyzes price, volume, and volatility to determine the likely trading range of an asset. These signals—categorized into Trade (short-term), Trend (medium-term), and Tail (long-term)—guide when to buy, hold, or sell.

For example, when Solana (SOL) broke its Trend signal—meaning the asset’s price dropped below the medium-term (3+ months) range his model identified as support—he sold the position entirely, without hesitation.

"As soon as Solana broke Trend, guess what I did? Sold it all. That’s how you do it," McCullough explained.

When it comes to Bitcoin, McCullough monitors its Trend signal closely. He described his approach in real-time:

"Bitcoin’s Trend is like right around... not today, but $95,800. So you can see it’s like clicking below it a little bit, going above it. Just let the thing do what it’s going to do for maybe one to two days. If, in 48 hours from now, it’s still below... I’ll just sell it all."

What Does “Below Trend” Mean?

For McCullough, "below Trend" means the asset’s price has moved below the medium-term range identified by his Risk Range Signals. This indicates potential downside ahead, prompting disciplined investors to exit their positions.

Keith’s daily Trend Signals and Trade Ranges for the most-traded crypto assets are available in Bitcoin Trend Tracker. This actionable dashboard is designed to help investors manage their positions with data—not emotions.

master FEAR AND GREED

McCullough cautioned against letting emotions like fear or greed dictate investment decisions. He singled out the example of selling Bitcoin based on fears about tariffs, calling it an irrational move.

"It is preposterous for someone to rationalize selling their Bitcoin because of tariffs. You don’t really know. You’re just concerned about something that’s concerning you. That is not a good fundamental decision."

Instead of reacting emotionally, McCullough emphasizes the importance of staying disciplined and adhering to a proven process.

Lessons From the Liquidation Event

The recent crypto selloff highlighted why emotional trading is so costly. McCullough explained that many traders who chased prices at the top of the range were liquidated—either due to stop losses, margin calls, or panic selling.

"These people have no idea what they’re doing. So liquidated is, they’re being forced to sell, basically. Yeah, well, they forced themselves because they have stop losses."

To put this into perspective, McCullough noted that the previous record liquidation event was during the FTX collapse, when $1.6 billion in Bitcoin was liquidated. The weekend selloff far surpasses that.

Key Takeaways

McCullough’s disciplined, signal-based approach has been helping Hedgeye subscribers preserve their capital for 17 years. Here are his key lessons for managing high-volatility assets:

  • Follow the Data: Use quantitative signals like his Risk Ranges to guide your decisions.
  • Act on Breakdowns: When a position breaks Trend (medium-term support), it's time to sell.
  • Avoid Herd Mentality: Don’t chase prices at the top or panic at the bottom.
  • Context Matters: The market's biggest moves are often tied to undisciplined investors being forced to liquidate.

"You shouldn’t play the game that way. You want to play against people who play the game that way."

Learn more about Keith McCullough's proven, data-driven investment process in his new book, Master The Market: A Hedge Fund Manager's Guide To Process And Profit.

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