Bitcoin continues to wow with its relentless push into the low 8Ks, but how much longer can it sustain this extreme momentum? Many internet analysts who focus on smaller time frames were sure this market was going to retrace back into the 4Ks or 5Ks once the mid 6K area was reached. And this situation serves as a perfect example as to why thinking in absolutes while focusing on detail that is minuscule can be misleading. More importantly, what kind of price action will clue us into the next retrace and what support level is within reason?
Order flow dictates price movement. This is what many internet analysts do not consider when they are making price projections and formulating opinions. There is no way to know in advance that price is going to a particular resistance level and then turn back to test a specific support level 1000 points lower, yet they continue to make these claims.
Everyone is entitled to their opinion, but the problem is following this type of analysis creates expectations. These expectations help to construct boundaries within the minds of novice investors who do not yet grasp the passive mindset required to navigate environments of great uncertainty.
Charts provide historical price information where we can derive clues as to how the order flow is likely to act in the near future. For us that means the next day or two, but it all depends on what kind of patterns develop OR don’t develop when anticipated levels are reached. Figuring out where Bitcoin is going next requires the ability to evaluate the action at the moment, and being open to what is within reason BASED on previous price history. Nothing is absolute, and change is something that must be adjusted to constantly.
Not Every Clue Is On A Chart?
Price broke from the 6K area and went to 8350 in a couple of days. You can search all day long on the internet, looking for the reason why, but for weeks we have been observing short interest which has been at record highs since Bitcoin pushed into the 5K area. We wrote about it the entire time, but what made it most compelling was short interest would increase while price was not breaking any support levels. This was the first important clue that this market was never a short.
These participants who insisted on shorting this market were eventually forced to become buyers as the price started pushing relentlessly higher and triggering margin liquidations of their accounts. When short interest is high, but price is not going much lower, it is reasonable to think of those shorts as a potential catalyst to drive prices higher, and they did their part well. All they required for some motivation was more positive news which came in the form of Starbucks announcing they will be accepting Bitcoin through Apple Pay. There were other similar announcements including one from Ebay. These are huge steps toward mainstream adoption and acceptance, and not good if you were short.
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Bitcoin Support Levels Are Reference Points.
Now price action is beginning to show signs of a short term peak. With the appearance of a bearish pin bar off the 8350 high, it is time to step aside and WAIT for the next support level. The question is where?
Order flow which is driven by the irrational forces of greed and fear has a tendency to unfold in proportional ways. This is where chart patterns come into play and help to offer clues toward forming expectations that are inline with the market’s natural intent, not some arbitrary level from an internet analyst.
Based on the current structure, the 6300 area and low 6100s are proportional locations to anticipate renewed buying activity. This area serves as a reference point to look for buying activity, it does not guarantee buyers will appear.
In strong markets, support levels that carry less weight tend to attract buyers sooner. Such a level would be the low 7Ks (where the current bullish trend line appears).
Between these two price areas, we can at least be prepared for reversal signals and confirmations to go long for another swing trade. That is IF they appear. If they don’t, we do our best to stand aside. More often than not, staying out of the market is better than looking for any little reason to get back in.
Most importantly, we are always open to the idea that anything can happen. Price may barely pull back and go to 9K. No one knows for sure. The idea is to be prepared and know exactly what to look for to get in, along with specifically defined risk. As traders and investors, the only control that we do have in this environment is how much we choose to lose.
Waiting For The Setup.
What kind of trader are you? What kind of time horizon do you intend to operate within? And have you defined how much risk you are willing to take? These are questions that you must answer for yourself before you enter any type of position.
We operate on both the long term and short term horizons simultaneously. It is a matter of organization. Besides swing trades, we also hold inventory from an average price of 4300 which we got a lot of criticism for when Bitcoin was pushing lows. Now we are letting the position run while planning to take partial profits over the duration of the broader bullish movement. Did we have any special information that helped us get into such a position? Only the charts and our experience.
Bitcoin still has plenty of room to run over the long term. 10K may be weeks away, while 12K could be a matter of a few months (as long as the current structure holds). Either way, we do not predict, we only adjust as new information becomes available.
At the moment, we WAIT for the retrace and see how far the market chooses to go. Bitcoin remains the leader of the space, and has especially proven its dominance in the face of the alt coins which could barely keep up. We will watch and wait for our levels. From there, evaluate the price action while looking for our buying criteria to be met. No its not exciting, but it is effective.
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