Bitcoin Update

Are the bulls finally back in town? We wouldn’t get overly optimistic just yet, but so far it appears that the bottoming process has begun. With a dramatic short squeeze to 4K in a matter of a couple of days, Bitcoin is now in a position to build more supportive structure over the next few weeks. As price unfolds, we will be weighing evidence and carefully evaluating short term opportunities. This report will shed some light on one scenario we would like to see, along with what technical signs will negate this short term progress.

The Hints Were There

We have written it before: Tops and bottoms are a process, not an event. In order for a market to establish a bottom, it takes time to develop the appropriate structure. Most new traders and investors go wrong because they focus too much on minor details in isolation instead of evaluating them against the context of the bigger picture.

Bitcoin Chart Update
This is how bottoms begin.

The recent descending wedge structure is a perfect example. This type of chart pattern typically occurs when a trend is reaching exhaustion. In this case, the chart pattern alone was not the tip off to the coming short squeeze. It was observing such a pattern within the context of a major support level along with the candle stick behavior leading to the squeeze.

It is the overall context that comes together and points to a higher probability of an outcome. This is why traders who rely on oscillators are so behind the curve. They focus on one or two variables that happened some number of periods ago. Without any context to evaluate against, the information offers very little analytical value.

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Worth The Wait

To react is to succumb to the very weakness that drives the herd. The herd gets excited when price provides a dramatic move one way or the other. A week ago, the herd was extremely bearish as measured by the record high short interest across the entire space. That is the recipe for the type of squeeze that has developed, especially in the facing of a pattern like a descending wedge.

Do not react and look to buy now, that is what the herd is for. If this market is going to recover over the long term, there will be plenty of more attractive reward/risk opportunities.

And it all begins with levels and structure. At the moment we are waiting for a retrace to either the 3750 or 3450 support areas. These are proportional to the newly established bullish leg.

Any price retest followed by the development of a reversal pattern will begin to build a broader higher low structure. And that is one scenario that will prompt us to enter new swing trades. Again this takes time, but by waiting for a more favorable environment, you increase the chances of taking trades that work out. This is about probabilities, not about being right.

What Bears?

Do not forget that this market and the entire space is still NOT out of the clear. All we have is the formation of an initial leg, and it needs a lot more time to prove if the bottom is in or not. If price retests the projected supports and closes below them, then things can get ugly, really fast. Again. That would negate the one recovery scenario mentioned earlier.

When it comes to market timing, WAITING and constantly evaluating RISK are the two traits that will make you successful. This is a game of probabilities, and price levels and formations are the tools that help us weigh, measure and compare information. That is where context and perspective come from. And without such a view, your decision making process is more likely based on the least helpful element of all: your feelings.

Are the Bitcoin bulls back in town? Based on the evidence available, it is too early to tell, BUT by waiting and letting the market build the proof, you can better position yourself to ride the bull when the ride is the easiest.

Questions and comment welcome.

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