Long Trigger 6285 Stop 5980 Target 6640 R:R 1.25

BTCUSD update: Pin bar appears right off the 6K psychological support. Now that this reversal candle is closed, swing trade criteria can be watched for. Even though this market is still facing bearish structure, the bullish potential at this location is greater than the associated risk which offers some aggressive long possibilities as well.

Psychological Levels

Psychological levels are locations on a chart that participants react to simply because they have some kind of emotional or anecdotal significance. Whole numbers tend to have this effect in any financial market. 10, 200, 1000, 6000, 20,000 are examples of whole numbers. This becomes amplified when media outlets pick up on it and dramatize the levels. It’s like you are watching “Bitcoin 6K: The Major Motion Picture”. This effect is usually more dramatic when a market reaches one of these levels for the first time.

In the case of BTC now, 6K has become psychological not only for it’s whole number effect, but also because of it’s historical significance. When this market had its first dramatic pull back after its peak back in February, it went to 6K in an extreme fashion. It then reversed back up for 5K points in a matter of weeks. Dramatic moves like this leave a mark in the “memory” of the market which are usually attributed to a variety of complex behavioral reasoning (beyond the scope of this article).

Probability of Location

This market still faces short term bearish structure. I have been highlighting this conflict in a number of recent articles and you can read one here.

And it still has some merit. The bearish trend line now at the 6600 area is still in play and 7381 (.382 of current bearish structure) still needs to be taken out in order for the short term outlook to change.

Bitcoin: Pin bar established off of 6K psychological level is a significant sign of strength.

The mistake less experienced traders are making is they are focusing on trend following indicators in a location where a trend reversal is highly probable. 8171 to 4983 is the .618 of the entire bullish structure relative to the 150 lows. This means the entire 3K range is an area where broad reversals are more likely to happen. And if you look back, so far two broader reversals have occurred here.

The weight of the location is greater than the weight of the immediate momentum. What tends to happen is the herd starts shouting about BTC 3K while the bearish order flow dries up. The large bullish pin bar that has just appeared is clear evidence of that.

An Aggressive Idea

At the moment, the criteria to enter a swing trade long has not been met. One technique that I utilize in situations like this is what I like to call the extreme limit order.

Often I do not recommend placing blind limit orders in a market because price can just keep going. So usually it is better to wait for confirmation, but on occasion there are exceptions.

In this situation, the exception is that a large bullish pin bar is present. On top of that, it formed above the 6K psychological support and near two reversal zone boundaries, the 5956 and 5669 levels. Placing a limit order somewhere below 6K after this price action has taken place, is an aggressive way to capitalize on any over reactions or noise that is likely to occur in such a situation.

It is also aggressive because it’s fishing for a low, betting that price will not go much lower in a short term bearish environment. So small size and a stop below the 5750 area are very important risk controls that must be considered for such an idea. Keep in mind this is not an official trade, just a technique to pick up a base position that can be built upon if this market decides to retest the trend line resistance.

Always Consider The Big Picture

Inexperienced traders get too focused on details that lose their relevance fast. The herd is focused on the “bearish trend”. All the moving averages and derivative oscillators, along with all the talking heads who follow these lines on a chart are all saying the same thing.

There is nothing wrong with using a trend following indicator for some guidance, but knowing its limitations is also just as important. These tools do not consider changes in order flow or sentiment which can only be expressed in chart patterns. They also do not consider the probability of location which is why so many are taken by surprise by pin bars like the one that appeared “out of nowhere”.

The best way to get a more complete view of the market is to consider levels, chart patterns and candles over a larger span of time. And keep this information separate from your short term “crossovers”. This will at least offer a way to adjust your trades and positions to be more in line with the market intent as it changes. It opens the door to flexibility and listening rather than following a bunch of lines on a chart that become irrelevant at turning points.

Either way, do your best to develop your own perspective and your own decision making process. It is you that has to take responsibility for your performance and risk, not the online personalities who produce analysis or ideas that you follow.

Questions and comments welcome.

4 Responses
  1. danny43

    thank you for your analysis, as always. I get the stop loss placement – just under the 5956 minor reversal zone boundary right? I do not get the buy trigger.. 6285.. my trigger was the 6250 high of the pin bar. Is it set so your readers have time to react? Or why break of that level is the buy signal? Thank you.

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