Bitcoin – Panic Button Selloff or Noise – Are you in Reaction Mode?

Overview:

Not sure how, why or what caused the sudden rug being pulled out from beneath Bitcoin today, but though we understood this was an area where a pullback was possible, it was definitely a “wow” moment.  Nothing like being almost finished with the SC Weekly and having to go back and rewrite the article.  The question is here, what do we do and how do we react?

Reacting:

First it is important to understand that reacting to a market intra day move is probably the wrong thing to do.  It is not like we didn’t expect a pullback, but something happened to trigger a 400 point selloff in minutes. Regardless if it was a fat finger trade, market raid, or stop fishing the reason is insignificant.  Do not get sucked into the click bait like “Crypto Blood Bath” “Flash Crash” and a bunch of crap that is simply telling you the market sold off.  The important thing is remain calm and allow the market to do what it is going to do. Nothing to do but wait and assess the market once the water clears. 

Ohh believe it, we will see the bears out in full bloom with the “I told you so, 2500 in range” bull crap, but in reality this is nothing more than fear mongering.  Not that we can not push that low, but we have not even broken the initial support level yet, first things first!

 

BTCUSD (Coinbase)

Bitcoin Chart

The overall pullback happened in an extent of 15 minutes and again we do not care who, why or how it happened.  The 3730 support and broader trend line are still holding up and there is nothing reacting will do at this point, but form bad habits like emotional reactive trading. 

As long as the 3700 level holds we can still consider this a bullish trend, but the extent and severity of the selloff in such a short period does have us pushing the pause button until we see some clarity.  As we mention over and over, bottoming is a process not an event and sentiment can switch quickly.  Moves like this are not uncommon after a initial rally and are prone to manipulation during a period of time where trade volume is traditionally lower.  Again manipulation or not it does not matter.

In reality other than the promptness of the pullback, this did not come unexpectedly.  The 3730 or level close to this level has been a support level for some time.  We adjust as the market changes, so whether it was 3715 or 3730 we are essentially looking for support around 3700.

It is important during selloff periods like this not to be reactive in nature and hit the “panic” button.  Step back, grab a fresh breath of air, and relax.  Much of this selloff could have been just that, the market started to pullback and panic set in.

What is most important is what Bitcoin does next.  Does it push higher towards 3800 by the end of the day, consolidate with an inside bar off the 3730-support level, push through support and retest the broader trend line.  Until one of these events unfold, we are simply guessing why and what happened. 

Summary:

There is no reason to panic here, and getting caught up in all the FUD news will make you an emotional trader.   Even though I went “WOW” when I saw the rug pulled out, there was nothing to do other than step aside and let the market work it out not try and guess why where and how.

Initial rallies during recoveries are met with a lot of pessimism so it is not unexpected to see capitulation into a support level quickly.  We call this the rug getting pulled out of a rally.

The point being made here is so far support is holding up, and even if it doesn’t reacting here only makes you an emotional trader.  We will see how the day closes out, look for how the next candle opens and assess the market once there is more clarity, for now we just have a spike down.

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