BTC USD update: Patience pays as the Bitcoin price hesitates off of the 8703 resistance level. If the next minor correction manages to stay above the 7758 reversal zone boundary, then the next reversal formation will present an attractive opportunity.

Don’t Chase Bitcoin

When a market is looking good, like this one was yesterday, the urge to chase runs high. Fear of missing out, losing money because you are not in, etc. Do not be consumed by the emotional tendencies of the herd. 8703 is the active resistance (.382 of recent bearish structure), and must be taken out in order to prove this market is going higher in the near future.

In my previous LTC report I wrote about capitalizing on noise and the philosophy behind missing moves. Focus on probability, not profitability and you will find yourself in better trades. Read my article here.

What Does Next Buy Look Like?
Bitcoin: Don’t Chase, Any Retest Below 8K Is Much More Attractive.

Price noise is just randomness expressed in order flow. Most of the time this is what we are facing. This means most of the time, there is no advantage to putting on a specific trade like a swing trade. What we are looking for are the unusual times when an advantage exists and in Bitcoin, that is somewhere between 8044 and 7758. These are the reversal zone boundaries or high probability areas where price is more likely to reverse and follow through.

The key to participating in such an opportunity is the formation that follows any retest to these levels. Bullish pin bars, inside bars, engulfing candles are all welcome signs that will prompt us to issue a new swing trade long.

Otherwise, if price falls through, which can happen, then we just stand aside and wait for stability to return. We are passively listening to the market, evaluating and gathering evidence to justify a trade. This has nothing to do with intelligence, or having a degree in economics. It is just about following guidelines and best practices.

What About Long Term Positions?

Andrew has written an article about managing inventory in Bitcoin around this price action (Read here). Swing trade signals like the ones we are anticipating around the 7758 level are an opportunity to add to inventory. Keep in mind, fractional sizing and no use of margin are extremely important for this type of management.

One key difference between a position trade and a swing trade is that a position trade manages risk in other ways like fractional sizing, and hedging. A swing trade is a very specific set of orders, is shorter term and uses a stop order to limit risk.

Information Is Expressed In Order Flow

Many people do not understand how much information is available on a chart. All the known information about a market is reflected in the buy and sell decisions that are made by the majority of the participants. The large traders who have access to better information than everyone else can attempt to hide their orders, but over time, their footprints become visible because their orders express themselves on a chart in the form of identifiable patterns.

As price action traders, we do not need to know why the pattern is there, all we need to do is recognize what that pattern is implying about the underlying order flow. Want to see a great example? See the my recent S&P report here. Some very clear chart patterns pointed to higher prices way before the news gapped the market higher.

The point is this: focus more on the chart and less on everything else. All the information that you need to make reasonable decisions is available on a time and price chart. If you want to unplug yourself from the market herd, you must not do what they do, or think like they think. One way to separate yourself is to stop consuming irrelevant information like dramatic news reports.

The probability of a higher low or failed low formation is high in the vicinity of the 8171 area or below. That is the only information I am interested in. Otherwise, wait it out.

Questions and comments welcome.

4 Responses
  1. btc.watson

    What’s your view on the current cycilical context of this market? If our recent bottom was the accumulation phase (at lightening speed, if that’s what it was), shouldn’t it be followed by something resembling a public participation phase? Or do we need to zoom out to crazy high prices in the future to understand that we’re in the middle of public participation. Judging by the psychology on the street, I haven’t seen enough fear, panic, anger, lost hope, or stories of bankrupt millennials to think that Bitcoin has seen the bottom. If the 7800 support is broken, the next support is 1000 points away. That’s quite a risky position to go long when you’re on the edge of the abyss. Wouldn’t you recommend to just sit this retest out until the bulls regain their footing? After all, each retest of a support has seen it broken on this recent downswing.

    1. Marc Principato

      It all depends on your own personal risk tolerance. There is always the potential for a pullback and market sentiment can change on a dime. So trying to guess where the market will bottom may result in missing a move to the upside. I would recommend reading Andrew’s article on Bitcoin where the strategy is to buy into weakness in partial positions. This allows for flexibility if the market pulls back, and exposure if the market starts to rally.

      Keep in mind sentiment can change on a dime as we saw with the stock market the past week. There is no guarantee one way or the other, we look for opportunities and have a strategy in place allowing for longer term positioning for longer term investors.

      Thank you for the comment.

      1. jstrachan

        Hi Marc, I have a similar question as the one above from btc.watson and wrote to Andrew after reading his “Bitcoin – Cloudy With a Slight Chance of Rain” trade idea. It would be good if either of you could provide more guidance on position trade risk management apart from entering partial positions. For example, what would trigger you to close out your BTC long (entry at 8464) at a loss if the market continues to dive or is the stop time based?

        1. Marc Principato

          Hello and thank you for your question. Cost averaging is the risk management for this type of trade. When it comes to managing inventory, the idea is to be in for the long haul. This means no stop order. The only way a position like this will work out is if: you are willing to hold it to 0 (which means you believe in this market for the long term), you do not use margin, and you are sizing proportionally to your account. It is like stacking gold bars. You buy then when they are very cheap, and sell them when everyone wants them. Would you ever dump a gold bar? It is the same mentality. You have to be willing to lose in order to win. That is why you only risk money that you can lose without a problem. By sizing properly, you can take advantage of extreme prices while everyone is reacting. If you get too big too fast, you will have a problem. I hope this answers your question.

Leave a Reply