Bitcoin pushes through the 5400 area swing high which is not too surprising since recent order flow conditions have offered numerous clues. It is certainly a welcome sign for the buyers who have patiently sat through attempted sell offs and tons of bearish chatter. What is not aligned with this break out is the behavior of the alt coin space and that can be cause for concern, especially since Bitcoin continues to linger within the 5200 to 5800 resistance zone.

Many new traders and investors come to this market all wrapped up in fundamental reasons for taking trades. While fundamentals are good to know, they usually do not offer any particular timing advantage, especially for short term trades like swing trades.

It is also important to realize that price action is a reflection of the perceived value of a market as expressed by the order flow of the most active participants. This means the market crowd which includes those with information NOT available to the public, is reacting to fundamental information that you will most likely NOT have access to until it no longer carries any significant value.

Therefore the typical use of logic to derive timing decisions from fundamentals will prove to be ineffective. ESPECIALLY when it comes to Bitcoin and the alt coin space which are the most emotional, ignorant and manipulated compared to traditional markets in my opinion.

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Next Is More Important Than Now.

All of the translates into people always wanting to know “WHY!?” a move happens in these markets. And the reality is it really doesn’t matter why. Price action is a mechanism that is always working to discount the future. Instead of wanting to know why, we are more interested in wanting to know what is more likely to follow. And that is where the scope of our evaluation begins.

Our bias has turned bullish on Bitcoin and the entire alt space since the recent 4500 resistance break and we have been adjusting our strategy since.

Now that Bitcoin has cleared another important resistance of 5400, our question is “what is more likely to happen next?” and this is where the alt coin participation or lack thereof comes into play.

Bitcoin Break Out? Not Without The Alts.

We recently had a swing trade long in Litecoin which was stopped out. We also have a swing trade long in NEO which is not benefiting from Bitcoin’s bullish momentum. From my experience, Bitcoin’s breakout is highly vulnerable IF the alt coins aren’t being supportive.  The way we interpret this is: The Bitcoin move is isolated to a smaller group of shorts being squeezed rather than new capital flowing into the entire space.

This lack of alt coin participation happens to be unfolding in a technical location that can still attract significant selling pressure for Bitcoin. When a short squeeze is accompanied by broader participation, the result resembles what we saw when Bitcoin went from 4130 to 5K. Fast, sharp and the entire space pretty much mirrored the move. That is not happening right now. In a nutshell, this lack of participation can be interpreted as a sign of hidden weakness which is NOW beginning to play out. This increases the likelihood of faking out rather than a dramatic push to 6K.

No alt coin rally? Bitcoin more likely to fake out.

With Bitcoin beginning to retrace, the alts are further in the red which confirms our observation. When new capital flows back into the alts, Bitcoin will have a better chance of pushing through to an even broader historical level.

The low 6Ks are where we anticipate a much heavier resistance. Why? Just look at the consolidation that occurred at that level preceding the December low. In theory there should be many longs in that area that would be more than happy to exit at break even.

So how to navigate this? Our position trading and swing trade strategies are TWO separate strategies each with their own objectives, risk profiles and sizing methodologies. In terms of swing trades, there is nothing to do at these highs, especially in this potentially vulnerable situation. A retrace to the low 5Ks is more in line with our criteria for a long so we WAIT. IF the market offers that kind of opportunity, we are prepared, and IF it doesn’t we ADJUST to whatever new levels it provides.

As far as position trades go, we always explain that IF you have NO exposure to Bitcoin or any of the alts on our radar, there is never a bad time to buy, but if you are buying at a high (like 5600) then it makes more sense to size strategically. Position trades are NOT all in all out like our swing trades and sizing/risk management both play a much bigger role than specific signals. Since we carry inventory in Bitcoin and a select group of alt coins, we would rather wait for more attractive levels. (We just bought more EOS, NEO and ADA because they are in line with our risk profile and criteria for the type of trade). And based on it’s technical position, Bitcoin is much more attractive somewhere between 5100 and 4900, for buying more inventory.

Plan First, Chart Second.

Overall, the key to better anticipating the market’s next move is to evaluate the current price action against the bigger picture, and that includes variables that you cannot see on a chart like intermarket relationships (alt coin participation) and short interest.

If Bitcoin fakes out within the current resistance zone, that does not mean it will go straight into a bear market. The broader structure has proven to be bullish and it will be a matter of where price finds its next support. 5100 to 4950 is on our radar, but 4500 is also still within reason. Having an open mind and being prepared for multiple scenarios is what facilitates effective adjustment. In other words, being flexible and open to a number of market scenarios allows for better timing because decisions can be made in advance.

Like Andrew reminds our members, whether Bitcoin goes higher or lower, we have a plan to capitalize on the opportunities it provides either way. Following through on the plan is just a matter of discipline and patience, nothing else. What decisions have you planned in advance?

Questions and comments welcome.

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