Bitcoin squeezes yet again, up into the high 8Ks which reached both of our swing trade targets in a matter of hours. Higher lows often lead to higher highs and that is the main premise behind our more aggressive stance going forward. The other thing to remember is a higher high is a better place to sell (lock in profits) than it is to buy or establish a new position. Can Bitcoin go to 10K? Price structure still supports that idea BUT a recent Elliott Wave count reveals a 5 wave structure which means the risk of retrace increases on a larger magnitude. What does this mean for your investment in this space?

The dashed lines represent the trade idea sent out on Thursday 5/23.

We sent out a swing trade idea just a few days before the move to the 8900 area. The trigger was at 7898 and price took it out but hesitated for about two days before the squeeze came. We sent out an update on Saturday that outlined why a higher high was still likely and also what could go wrong.

Like I explained in that email to our members, there is no way to “predict” when price will break out, or how far it will go. Everything is based around probabilities that are generated by the proportions of price structure.

And for that reason, we emphasized why it is so important to stick to the plan and take profits at predetermined targets that are associated with the specific risk assumed for that trade. And those exits were 8354 and 8684 respectively.

Even though we know the possibility of price going higher is there, we are satisfied with the return because we were only willing to risk about 500 points. Choosing to hold for more profit is acceptable when that kind of risk is accounted for BEFORE getting into the trade.

Home Runs Are Rare?

Mixing time horizons is a very common mistake that most novice investors and traders make in situations like this. They do not consider the original risk associated with the trade idea (or choose to forget about it) because they are distracted by euphoria. This leads to the home run or lottery ticket mentality. On occasion this pays off, but MOST of the time, this leads to staying in too long and giving back all the profit and then some.

Timing markets successfully requires a strong understanding of average price behavior and capitalizing on it. Very large moves are rare, and require a different strategy and risk tolerance in order to increase the chances of participating in one.

New member? Have you seen our podcast library? We cover everything from Bitcoin investing to stocks and options strategies. Check it out here.

From the perspective of Elliott Wave Theory, when an impulse structure completes (5 waves), what usually follows is a correction of the same magnitude. Keep in mind just because 5 Waves are present does not mean the market will correct in an instant. A 5th Wave can extend much further than expected so there is no way to pinpoint exactly when the next broader corrective wave will unfold.

The key to incorporating this into your strategy is to consider it from a statistical point of view. When 5 Waves are present, there is a much better chance of a broader correction. That is all you need to know. Then you must ask yourself, are you willing to risk your profits or capital through the next corrective phase in order to participate in the possibility of an even broader move higher in the future? We are not bearish at all, BUT based on proportions, it is within reason for the next corrective phase to take price back to the high 6Ks or low 7Ks.

And this is precisely why we employ short term and long term strategies simultaneously while keeping each decision making process separate. We exited our swing trade in the recent short squeeze, and took partial profits on a small portion of our inventory, BUT we still hold more inventory. If the market continues higher without any proportional correction, we still benefit while keeping our risk firmly under control.

What if Bitcoin retraces to the low 7Ks? We will be looking to accumulate more inventory and will demonstrate how we do this for our members. IF instead, the retraces continue to be shallow, we are prepared to put on our next swing trade, as long as the reward/risk makes sense. That means it will have a specific stop loss and predetermined targets, while our inventory strategy does not (risk is controlled through position sizing).

Don't Follow. Think For Yourself.

The 5 Wave impulse structure is not just present in Bitcoin, it can be observed across the entire space. Litecoin, EOS and SAN show clear 5 Wave structures to name a few. In recent months the entire space has been generally traveling as a whole so similar price patterns in other coins serve to reinforce the short term possibilities in Bitcoin.

In summary, timing markets consistently is boring. I make every effort to write about what I see, and even though it is in line with market intent, it is NOT what the average trader or investor usually wants to hear. I will not talk about 10,000% returns over night, or Bitcoin going to 15K by next week, even though I know those headlines would garner much greater attention.

If you are serious about investing in this space or any other market for that matter, your prime objective should be to develop the ability to make your OWN decisions, NOT to follow others, especially marketers who are only good are marketing their products (which this space is seriously polluted with).

Being able to make investing decisions on your own begins first with defining and organizing your own goals and priorities (which has nothing to do with charts or the RSI). When I ask people if they are long term or short term, many cannot provide a clear answer. If you cannot answer this simple but important question, how can you make decisions to buy and sell effectively while accounting for the risk you are taking?

First figure out what you want from the market, then learn what information pertains to your goal. Once you have that figured out, only then can a chart or piece of fundamental information even begin to prove valuable. For example, if you want to invest x amount with a goal of making 20% in a year, and do not have the time to monitor trades, then the best place to begin is with position trades. This choice alone should further define the rest of your expectations, risk tolerance and decision making criteria. We demonstrate our process on a regular basis, just read the weekly emails we send to our members.

Questions and comments welcome.

This is a Free Member article. To receive email notifications when new articles are available, click here.

Leave a Reply