Overview:

The Bitcoin rally is a great initial move out of an extreme low, however, we should caution that recoveries happen over time as Marc pointed out in his article.  There are a few specific patterns we look for but to think we get a “V” type recovery here would be overly optimistic.  This does not imply this is not a good start, it is, however we likely get a few opportunities in the near term to start adding to our inventory.

BTCUSD:

The initial leg of any recovery this deep is going to meet numerous resistance levels along the way.  No different than a torn ACL where it takes time and therapy before you are 100%.  Markets work the same.  Even as sentiment starts to turn, there are normally enough pessimist calling for a “bull trap” to keeping the market at bay initially.  What we are looking for is a more larger degree structure, of which a bull rally can be built off.  This is why we remain optimistically cautious here.

The current candle is showing some signs of buyer exhaustion and it is near a level where we would expect this to happen.  Many bought in late November around this area as evident from the consolidation, and even earlier in December where it tried to retested the previous support level of 3500.  This is where optimism turns to caution quickly and those that bought above 3500 see an opportunity to break even and sell, and if it pulls back toward 3500 we see others start to cut and run.

This type of reversal attracts short sellers who once again pile into the trade, however IF there is significant optimistic sentiment, larger buyers will step in and we will find support prior to a retest of the low.  How deep we pullback will provide insight into the strength of the initial recovery.  So what is our strategy over the next couple days.

Strategy:

If we see a pinbar form at the close of day, we will wait for a pullback and look for a higher low along with some consolidation and maybe an initial impulse move off which we can trade.

If the bar closes strong, showing buyers are still stepping in here, we may look for a more aggressive swing trade off a continuation pattern.  The way we are playing this is smaller time frames to compensate for risks.  YOU MUST RESPECT THE STOPS which is extremely important and can not be emphasized enough!  We also need to get our money off the table quickly.

As far as buying inventory we are not adding here.  If you do not have any Bitcoin, nothing wrong with adding a small position, but no point in adding inventory until we see further evidence the probability is in our favor.

Bottom line  buying or trading here is risky as we are pushing into heavy resistance.  Markets are easily spooked during initial recoveries and normally we get another opportunity to buy at better prices.

Summary:

We are looking for a continuation trade based on smaller time frames, we are not adding inventory here and if the market pulls back we will look for a reversal pattern for an aggressive swing trade.

All trades are aggressive here because Bitcoin is still in the penalty box until it clears the 4800 level initially.  Until it clears 4800 the market may look good, but is very risky here.

4 Responses
  1. trader4ext

    Thanks so much for this awesome article Andrew!

    It’s so easy to get tempted now, so I’m very thankful for this update!

    Articles like this is what I was hoping for, I think I’ll have to try out the swing trade membership as well.

    Have a great day 🙂

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