Bitcoin has gone into consolidation mode since the big short squeeze two weeks ago. Paired with a high degree of bearish sentiment (just look at the herd of analysts on Tradingview), Bitcoin is beginning to show the price structure that points to higher prices ahead.

Signal Conflict: Buy or Wait?

Just a couple of months ago, this same market was pushing and flirting with progressively lower lows. That has since changed after the spectacular short squeeze earlier this month that took out the 4500 resistance level. The compromise of that level confirmed our outlook from range bound to bullish over the shorter time horizons.

Also during the period leading up to this squeeze, we had noticed dramatic improvements across many of the alt coins on our long term radar. WABI, BAT, LTC and EOS were showing clear signs of technical improvement after the lows were established in December.

Monitoring the health of the alt coins as a group can serve as an important gauge when considering something that is not always immediately clear on a chart: general investor sentiment, which is a key driver of Bitcoin.

If the alts are improving, Bitcoin is likely to continue higher. How do many investors buy these alt coins anyway? They use Bitcoin. And that brings us to an interesting situation. Bitcoin is poised to squeeze even higher, while fluctuating at a major resistance area.

Resistance Zone Tough Location.
Buy signal triggered but can price clear the wide resistance zone?

After the initial squeeze on Bitcoin, price made an attempt to break higher and pushed to the 5400 level. This is right in the middle of the 5200 to 5800 .618 resistance zone that is relative to the previous 6K area.

Not long after the 5400 attempt, price has retreated back to 5K. Since then it has been consolidating and even appearing to break lower. During this period, we noticed one very important thing that is not on the chart: the sharp increase in short interest.

This situation is also very apparent in public internet forums such as Tradingview. The majority of “analysts” are short, or calling for shorts while an extreme minority are calling for longs. This is the recipe for short squeeze part 2. Even though there was bearish structure and a possible lower high, if there are too many shorts, the likelihood of price going lower declines. The reason? In a figurative sense, there is “no one left to sell”.

And that takes us to the present where price has broken the minor resistance line at 5200 which can be interpreted as a long signal. I was more convinced Bitcoin was going to retrace to the 4500 area first, BUT when structure changes its tune, I don’t fight it, instead I adjust.

I do not predict the market, I let it tell me what it wants to do and NOW it is saying it wants to squeeze higher. So what to do?

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If anything, the current signal makes sense as a swing trade in terms of risk, compared to a longer time horizon like a position trade or an investment. The reason is: price is trading near a major resistance area. It can push higher, but the overall probability still favors a retrace lower. This makes the current buy signal very conflicting and requires more care and attention compared to just buying and forgetting about it.

Many less experienced traders do not consider the risks associated with the time horizon of the trade that they enter into. A swing trade should have a proportionally tighter stop than a position trade or investment. One of the biggest mistakes you can make is buying into a swing trade signal, and then let it turn into an investment if it does not go your way.

Although the entire sector is unfolding into a more forgiving environment, you do not want to develop such bad habits. Just ask all the buyers who kept buying and hoping during the Bitcoin bear.

I discuss this with Andrew all the time. He is comfortable buying shallow retraces like we are currently facing, while I prefer proportional pull backs (like the 4500 support). There is no right or wrong answer, it is ALL ABOUT PERSONAL RISK TOLERANCE.

Buying at the 5200 break out offers some short term potential toward the 5800 or even 6K area, but is also more vulnerable to the 5200 to 5800 resistance zone.

While the 4500 support area offer more attractive reward/risk for both swing trades and position trades in my opinion. It’s just that price may not retrace that low which is fine either way.

You're Not "Missing" Anything.

Bitcoin and many alt coins are poised for another leg higher, but not all the charts look the same. Some offer better reward/risk than others but the sector still moves together as a whole.

Bitcoin is now setting up for another push, but it faces a large obstacle: the 5200 – 5800 resistance zone. That doesn’t mean price can’t push through it, but it does invite more potential for fake outs and bearish reversals which can take price back to a much more supportive area.

Taking a position in such a situation is not about what is on the chart. It is about what you can afford to lose if the market goes the wrong way.

The price structure of Bitcoin and the alt coin space has improved dramatically which means if a much broader move is going to unfold, there is a good chance better prices or much less conflicted setups will appear in the future.

“Missing out” is nothing more than a mentality that is constantly fed by the instant gratification culture that surrounds many of us. Learn to recognize it, and learn to ignore it and when you do, your mind will be clear of the noise that prevents you from seeing a rare and high quality opportunity when it finally appears.

Questions and comments welcome.

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