Ethereum update: The ETHUSD price has rejected the 714 resistance as the coin markets retrace off another failed rally attempt. Lower highs followed by higher lows are the signature of a consolidation and consolidations are trend continuation patterns. This triangle (identified by the converging trend lines) is developing above the 656 support which still implies higher prices to come.

Ethereum Levels

656 is the .382 support relative to the recent bullish structure. As long as this level is maintained, this market is telling us it is poised to go higher over the longer term. The 714 resistance is the .382 of the recent bearish structure which serves as a good reference point to gauge a break out. At this point, a decisive close above 714 will signal that the breakout is in effect.

Ethereum: Can you count the 5 subwaves within this triangle?

Price action within triangles is tricky. It is often littered with false starts, fake outs, etc. One way to get an idea of when the triangle is complete is to see if you can count 5 waves within in it. This comes from Elliott Wave and is not noted on this chart for sake of simplicity, but you get the idea. The current leg is the 5th one which means this triangle is nearing completion.

Participating Is About Risk Tolerance

When it comes to putting on a trade, context must always be considered. Context is a consideration of the surrounding environment to help get a sense of the market bias. This information helps to shape how we interpret the more immediate price action.

The context in Ethereum is bullish. Price action has established a triangle at a higher low position (relative to the 358 low) and is holding above an important support (656). This is similar to the recent S&P triangle that pointed to the higher open this week, before the news gapped the market (See that report here).

There are a couple of ways to play this in terms of a short term swing trade. Outside of this triangle, there are two reversal zone boundaries which are the 642 and 613 levels respectively. The conservative choice is to wait and see if price can test this area. A reversal formation here is a high probability setup which is the trade we are looking for.

The aggressive choice is to place a limit order somewhere between the current price (683) and 650 to see if you can capitalize on noise. Why is this more aggressive? It is a bet that the structure holds without waiting for a reversal signal and trigger. The trigger helps to filter out these adverse movements, but you give up a more attractive entry. This is how we entered Litecoin (see article here).

Know Your Trade Category

Many newer traders do not consider categorizing a trade. They just buy and hope, that’s it. Short term speculation and investing profitably requires a great deal of structure and that goes for every choice you make in this arena. Choosing a short term swing trade, or a longer term position trade (inventory management) are two distinct styles that will shape how you manage risk and what types of targets are within reason. It is possible to mix the two, but that requires experience.

Our plan in Ethereum is to begin with a swing trade and let it evolve into a position trade IF the market allows. Working within the swing trade framework is what guides our choices toward the conservative strategy outlined above.

If you are unsure, or worse, scared, then the best thing to do is reduce your size to an amount that you could care less about. You won’t make any significant profit, but you will experience what it is like to trade without fear while still having some skin in the game.

642 is on our radar for the next potential swing trade. Let’s see what the market offers.

Leave a Reply