Bitcoin update: The recent progress toward higher prices is certainly a positive sign, but this market still has some obstacles to overcome. The purpose of this evaluation is to shed some light on the possibilities and hurdles ahead and how to manage decision making whether you are in a position or not.

One Of The Hurdles: The 6550 Area

If you look back on a chart since August, you will notice there is a lot of trading activity around the 6550 area. During October in particular price gyrated around the level in the form of a symmetrical triangle which eventually broke lower.

The fact that price has spent so much time around this level translates into one thing: a lot of volume has transacted there. That means when price revisits the area from a low, many participants who were taking pain will be more inclined to exit at break even. Whether this is a good or bad choice on their part does not matter, the point is there is a greater potential for selling activity.

The questions are: what to do if you are long? And what to do if you are not? Since we are long from a lower price, we plan to hold in anticipation of another mini consolidation followed by a squeeze beyond this resistance area.

Still waiting to get in? Then wait for the next consolidation break out. At least in this scenario, momentum adds to a more favorable outcome. The main thing to watch right now is the price behavior upon a retest of the new bullish trend line.

Bitcoin Chart Update
Bitcoin: How will price behave around the new bullish trend line?
What Can Go Wrong Here?

As price is pulling back to retest the old resistance/new support around the low 6400s, the market can over react. A close below 6430 without a SWIFT RECOVERY increases the chance of a revisit to the mid 6200’s.

That is the next area where we will look for a swing trade entry IF this scenario plays out. It is better to stay out and WAIT for either the consolidation breakout (now 6520) or the retest of the next relevant support (6250). Since we are long, we simply let the trade play out. We have a swing trade stop in place which will protect our account from any major sell off.

New member? Read a recent Bitcoin analysis here.

The Minor Triangle

There is a smaller symmetrical triangle around the 6400 area. Similar to the 6550 level, the price action here also points to a larger volume of transactions. This increases the chances of buying activity since the short population at this level is naturally inclined to cover to break even. Any hesitation here is worth evaluating further.

If price closes below 6430, but shows a reversal pattern around 6400, it serves as area to look for a swing trade long. It all depends on how the market unfolds and the patterns that appear. Jumping in blindly at the level is not an effective way to enter this market. Waiting for the setup is what increases your probability of a more favorable outcome.

What About The Position Trade?

Keep in mind we separate our strategies by time horizon. The levels that I have been writing about here are appropriate for a swing trade. This is short term, with a defined stop and relatively near by profit target. The objective is a quicker return with proportionally smaller risk.

The position trade, which looks to capitalize on broad moves over longer periods of time (inventory strategy) requires a larger degree perspective. This is where the extreme price scenario comes into play.

We carry a Bitcoin inventory which we look to hold over the long term. In order to add to it, we look for particular situations and prices. Right now we continue to eye the 6100 area or lower. Especially if there is a swift sell off.

We manage our inventory according to a separate set of rules when compared to our swing trades. We use carefully thought out position sizing strategies instead of a hard stop. The risk is greater in terms of exposure since we are always in, BUT we will not miss any major moves when the market is surprised by an event (Bitcoin ETF approval by the SEC?). The charts help us figure out where to add, lock in profits or reduce risk. They do not help to time fundamental events, that is part of knowing your environment.

What’s Your Game Plan?

I touched on the concepts behind our game plan for our swing trade strategy as well as our inventory strategy. Having a plan, no matter how simple, puts you ahead of the herd which typically acts only on impulse.

Many new traders do not know where to begin. The best starting point is to determine how much money you intend to work with, and then choose a time horizon and STICK TO IT. In the beginning choose ONLY ONE, since multiple strategies can be confusing, especially during adverse moves.

For most newer traders, inventory management is the easiest place to begin. It does not require as much precision and timing as the smaller time frame strategies. It also does not require a lot of attention. The objective is to build inventory around an average price (near supports) and lock in profits when the market offers an opportunity (when price goes vertical). It sounds easy, but when you mix greed and fear into the game, then you find yourself second guessing. The point of having a plan is to reduce or eliminate that particular behavior.

Once you determine your objective, then you can better organize the information on a chart for timing purposes. Not all setups are created equal. Each situation has its own set of unique reward/risk variables. Only the rules and criteria defined by your plan can help put these factors into a coherent decision making process. Start simple and make sure to write it somewhere because if you cannot explain it in a clear and concise way, it is not really a plan.

Questions and comments welcome.

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