Bitcoin update: Out of play does not pay. Write that on a sticky note and put it on the screen of your mobile device. Bitcoin is in a tight consolidation and during these periods only extreme prices will offer the most opportunity to get in or get out. And extreme prices are rare. So what do you think that means? It means if you want to come out ahead, you have two choices: 1. Prepare to buy a relevant support and 2. Prepare to sell to exit (NOT SHORT), a relevant resistance. Anything else and you will quickly find out you are wasting your time and money.

There's Action? There's Opportunity

“Experts” who are calling frequent trades in Bitcoin or any alt coin are only exposing their lack of experience. Keep in mind, many of these “gurus” have only been trading a couple of years. It takes about 10 to really get a good grasp on the basics, anything less than that, these people are no more advanced than a beginner when it comes to strategy and timing. The only thing these experts do effectively is ask for your money up front. Timing markets is the same no matter what you trade. Timing Bitcoin on the short term is the same as timing the S&P futures or a forex pair. And any expert should know that the best way to navigate hard money environments is to apply extremely selective criteria to trade decisions AND to allocate capital to OTHER markets that are more active and offer a TON of opportunity.

When I started out 20 years ago as a full time NASDAQ day trader, one of the first lessons we were taught by traders making the big money was: Only trade stocks that are in play. Today, instead of stocks that guideline applies to entire asset classes. Bitcoin out of play? Do not bother with the alts, instead take a look at the forex markets or futures or stocks. That is where the action is, and where there is action, the chances of making money are much greater. No matter how you slice it, market timing is a game of probabilities and in order to win, you must stack as many factors in your favor as you can.

With that being said, the goal of this article is to point out the best levels to WAIT for if looking for short term trades in Bitcoin. To give you an idea of what is realistic in this environment, when we first started our Expert Swing Trades signal service, 2 – 3 trades were considered a busy week for this market. Today, if you get 1 trade per week, that is A LOT. That is the nature of the environment. The only thing you can do to be productive is to capitalize on opportunities in other markets UNTIL the money comes back to this market. This means WAITING for primary setups, or secondary setups, everything else is low probability and not worth the risk. It’s like getting a pair of unsuited, unconnected cards in early position at a poker table. What do you do? Throw them away. And if there are only 2 players seated at the table, what do you do? Find a table with more players. Follow the money. Where there is action, there is greater profit potential.

Bitcoin Chart Update
Hard money environment.

Over the near term there are only 3 levels to be concerned with: the 3K psychological support, the 3450 area support and the 3700 area resistance. What appears to be happening at the moment in this low volume, out of play environment is “stop running” as demonstrated by the outside bar and long wick that attempted to break the 3450 area. Stop running is a very old game that market makers used to play in the stock and forex markets because they could. If you are not familiar with it, it works like this: market makers can see all of the resting orders on an order book. They know where the large groups of stop orders are and they also have the financial ability to push the price far enough to trigger these orders while taking the other side of them. This used to be most commonly done in LOW VOLUME markets. Since the Bitcoin space is unregulated, market makers can do this all day long without any regulatory risk. Buying or selling breakouts in this type of environment usually results in a loss, which is why once this pattern is recognized, either stay away or play the range.

As some of you may know, playing the range may appear to be “easy”, but it has its risks like anything else. The risk in this case is getting caught on the wrong side when the market finally breaks out of the range. Eventually it will happen, and there is no way to predict when. So with Bitcoin, we will be adjusting our strategy to capitalize on the tight range BUT carefully. This will be done with smaller sizing and a wider stop in case Bitcoin actually breaks out and follows through. IF price can retest the mid to low 3400’s, we will be looking to enter the market in anticipation of a failed breakout and return to the middle of the range.

The other thing to keep in mind using this adjusted mindset is what to expect at the 3700 resistance. In any other market, we would look to short this, but we do not short Bitcoin. So this becomes a location to either take profits on an earlier purchase, or simply avoid. Shorting carries more risk for many reasons that we have covered previously. Plus, the broader consolidation has produced a bull flag formation which means IF price is going to break the range, it is more likely to break higher. So we prefer to stay out of its way.

IF price happens to break the lower part of the range, 3K is still a possibility. That kind of break could lead to a trend movement lower which we would just stop out of and stand aside. Remember timing has more to do with letting the market provide information and adjusting, not “predicting” where price will be in a week. Flexibility is key and not only when it comes to pattern recognition but also when it comes to strategy selection.

New member? Check out a previous Bitcoin article here.

When I finally grasped the concept of having a “strategy”, I would only apply that one strategy because that was all I was capable of comprehending. The reality is, part of being a consistent trader is having the ability to adjust to and apply multiple strategies based on market conditions. No one teaches you this, and no one writes about it in any of the books I have read. It is something you must develop on your own as you gain experience and recognize what works and what doesn’t.

The Herd Provides Opportunities

Overall, hard markets require more discipline, more patience and MORE WAITING than action oriented and/or trending markets.  Along with that, having the ability to recognize what is going on in the bigger picture is even more important. The only way Bitcoin and the entire space is going to recover is when new and ignorant money jumps back into this market blindly. Without such “dumb” money, the entire space will be a slow grind. These conditions result when you have professionals trading against professionals. It is a Poker table with just of couple of super tight players. Go find a table with more action and preferably some drunk people, they will make the mistakes that will make you money.

Many do not realize, trading a financial market is not about trading numbers, or “economic reports” or other useless fundamentals. You are trading against the psychology of the other participants and you want to be able to capitalize on when they are wrong. In order for there to be enough liquidity for these opportunities, there needs to be a lot of ignorant participants. The more ignorant and emotional, the better for the participants who know what to look for. Bitcoin is a hard money market at the moment. If you are new to the game, the best thing you can do is learn how to invest over the long run. Learn how to play the bigger picture because it is a much better use of your attention, time and capital. And also learn how to invest in OTHER markets where there is plenty of ignorant money. How do we know it’s so ignorant? Just visit the forums on Reddit or Facebook, that is who we are trading against.  In fact, we are going to talk about how we use these forums as contrarian indicators on our upcoming podcast. (Check out our podcast library here.)

And do not forget: If it’s NOT in play, STAY AWAY. Consistency in this game is not just about applying the right strategy to a market, it is about applying the right strategy across multiple markets as they go in and out of play. This won’t be easy for a new comer, so the next best thing is to find a market that is moving and begin there because if you are going to make mistakes, make them in a more forgiving environment. The Bitcoin space is not going anywhere so do not worry about missing out. If anything, look to accumulate a little inventory, and spend time learning more while trading less.

Questions and comments welcome.

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