Bitcoin: Lower High Can Still Turn Into A Buy.

1 dic 2019

Bitcoin has generated a fresh short term sell signal which can lead to a test of the 6800 low or lower. Since our strategy is long only, we simply step aside, BUT keep in mind just because a sell signal appears, it does not guarantee a new low or a test of some unreasonable target like 5K. Many investors and traders get wrapped up in fundamental arguments and other topical information that has very little relevance when it comes to the short term nature of order flow. In this article, I will highlight the technical points that we consider over the short term and what needs to align in order to justify a new swing trade. Charts reflect order flow which is much more reliable than news or fundamental opinions of others.

1. There is a BIG difference between swing trades (short term) and position trades (long term). We carry inventory, while we trade in and out of Bitcoin for short term gains. Any price test below the 7275 level emphasizes the attractiveness for accumulating more inventory (wholesale prices). This is NOT to be confused with our swing trade strategy.

2. Price has established a lower high off the 7850 level. This is a bearish structure, since lower highs typically lead to lower lows. IF price breaks below the 6800 support, the next high probability reversal area is 6550.

3. We will enter a new swing trade IF: price produces a reversal at or above 6800 (double bottom), OR if it tests 6550 followed by a pin bar or inside bar. Realistic profit potential for a reversal off of these levels is at least 1K points (test of 8500 or low 9Ks).

4. The big picture (14K high to 6800 low) can still be categorized as a corrective consolidation or a Wave 2 (in terms of Elliott Wave). From our perspective, this is NOT a compelling bearish trend. It is a correction of the broader BULLISH structure from 3150 to 14K. That means the risk is still greater on the short side (especially for swing trades).

5. IF Bitcoin finds support and reverses, it NEEDs to prove itself by taking out the 10,300 resistance. In this scenario, the broader Wave 3 is likely in progress. Until then, we will continue to evaluate short term price action within the scope of a range bound market.

6. The probability of the location still favors broad bullish reversals. Short term price action (candle sticks and momentum) may very well be conflicting, but they still carry less weight. For us this means we weight sell signals less and buy signals more.

I am not sharing this information to persuade anyone to follow our strategy. I share it to provide a sense of perspective, and a look at the variables and elements that we consider as part of our decision making process. There is no single way to trade or invest in a market, but there are a collection of best practices that can lead to better results over time. Technical and fundamental analysis are just a small part of a process that is ruled by psychology (your own vs. the market). That is what best practices are all about and what I hope to effectively share here.