Overview:

After nearly a month of record low market sentiment and analysts calls for 2000 and a capitulation into the abyss,  there is clearly a nice initial impulse move through the first area of resistance. Bitcoin is up nearly 30% in less than four days and it appears we are in the initial stages of a recovery.  The question on everyone’s mind is “has the train left the station and did I miss out buying the bottom?”

Market Sentiment:

We have mentioned for months now that sentiment can turn on a dime, and this is a perfect example.  Even Wild Bill the other night, while having coffee, asked if he missed the bottom.  As explained in our Litecoin article where we spoke about the contrarian trader, and timing a bottom takes true grit, you have to step into the market when it looks its worst, when everyone is selling, and sentiment is at an extreme low.

What happens next is pessimism turns to optimism and the herd starts piling in.  They buy without reason because the market is moving up.  They have the emotional feeling that they are missing out, and in lieu of using probabilities and technical analysis, they hit the buy button.  Sometimes this works out, like in September of last year where the rally off 2900 resulted in a “V” shaped recovery, but this is not the norm.

One nice thing about fading into weakness, with dollar cost averaging, is you are already in.  That impulsive nature to hit the buy button is held at bay with, “well I did buy at 3550 so let’s see if I get another chance there.”  In simple words it has you thinking logically, not reacting to the sentiment around you.

Of course we did buy at higher levels as well, so we are not guessing where to get in, we can look to cost average these positions down as we look to buy pullbacks.  Unless there is something going on that we are unaware of, even if we see a move to 4500, we likely get another opportunity to buy.  Probabilities say we get another chance to buy in the mid to upper 3k’s, however, there is no guarantee.

BTCUSD:

Until Bitcoin pushes through the mid 4k level we still have to remain optimistically cautious as we mentioned yesterday to our subscribers.  Can we shoot straight up to 6k?  Sure we can, but this is a low probability and out of deep correction we are looking for structure to support the bullish thesis, not throw our money down on red when the roulette wheel is spinning.

There was a shorter term (daytrading) long trigger earlier this morning (3am).  The target for this is around 4140, so this is likely to be an area we see profit taking.  Of course markets are not based on one variable there are many.

Those shorting from lower levels, and adding to the previous resistance level, are being forced to close.  With many “feeling” they are missing the train, and shorts covering, we could see a swing into the mid 4k area.  This is not an area to enter new longs, you miss the trigger you wait, and chasing is a bad habit to get into.

As we mentioned yesterday, we are looking for the type of structure we typically see that provides a higher probability this is the bottom.  As optimistic as we are, we have to be cautious here and we are likely see a retest of the 3500 area regardless or even lower.  We are looking for a specific structure, not hype, providing a higher degree of probability that this was the bottom.

So why not enter here?

As we mentioned sentiment can turn on a dime, and as positive as it is right now, Bitcoin can reverse and retest the low.  Any sign of weakness over the next couple days will have bag holders cutting losses or locking in profits.  This can lead to the market calling for a “bull trap” and shorts piling back in once again. 

Keep in mind we added at 3550 so we do not mind waiting here. If we pullback over the next week or so, we will look to become more aggressive in our positioning.

Summary:

Though it is possible for Bitcoin to push up to 5k or even higher without a descent pullback, it is not probable.  Newer traders and investors are more concerned about being right and wrong, than risk management and probabilities.  Forming bad habits will come back to bite you in the long run even if you are right this time.

If you are just reacting to the move and you lack a plan or strategy you will develop into an emotional trader.  Rational traders patiently wait for confirmation.  Sure we miss out on one here and there, but in the long run it it improves returns.  Though this train may have left the station, if we are patient another generally comes along.  If this is a recovery there will be plenty of opportunities to add or trade.

It is about being in a better environment not getting the best price.  Pertaining to trading we have been patient and conservative since April.  Even though we missed out on a few trades here and there, our crypto swing trading account is up around 10% and we are able to take advantage of a bull market and not working to get back to even as many traders now find themselves.

Many that just had to be in the action during a horrid environment, are in a horrid position to take .

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