Bitcoin attempts to grind higher, so why are we not buying back into this just yet? Price structure says a lot about the underlying forces that drive order flow and at the moment there are two bearish patterns developing AFTER the 5 Wave completion and ascending wedge formation that we pointed out weeks earlier. There is no guarantee that these bearish signs will follow through, BUT why buy into something that is showing red flag after red flag? One thing that MOST new traders and investors fail to understand is how to WAIT for signs that support the broader trend, NOT counter it.

When traders and investors place buy or sell orders, they are taking action and that action is motivated by their perception of the future. Collectively these actions, also known as order flow unfold over time in the form of patterns. These patterns can provide important clues about how the market is more likely to behave in the near future.

Pattern recognition is NOT the only form of technical analysis, but it is effective, particularly for short term strategies like swing trading. It works well enough to build criteria and filters upon in order to time any market effectively. Why does it work for Bitcoin? Because Bitcoin is a financial market that is driven by the irrational forces of greed and fear, no different than any other market.

New member? Check out our podcast library. We add a new episode every week and cover everything from Bitcoin and blockchain to stocks, options and forex. Visit our library HERE

When Market Says Wait, We Wait.

We have been waiting this market out because of recent bearish chart patterns that have been warning of a coming correction. Waiting means NO trades. Some times this wait can be a week or two and members tend to get impatient, especially if Bitcoin appears to be moving.

Two weeks ago we spotted an ascending wedge formation upon a 5 Wave Impulse structure completing. These patterns appeared just before Bitcoin peaked at 9K.

We make it a point NOT to short these markets so going short is NOT a possibility or within the scope of our strategy. If you wonder why, just take a look at the move from 4130 to 5200. In case you don’t know, that is a short squeeze. That is when the majority of the herd is short, and they get forced out of their positions.

We have no problem shorting other markets like the stock index ETFs or forex pairs. The difference is stocks and forex are tightly regulated which means if you need to make adjustments or exit a short position in a timely manner, you will be able to LOG IN to your platform without any “Scheduled Maintenance” messages inconveniently popping up.

Bitcoin Still Showing Counter Trend Signs.
Potential head and shoulder plus bear flag.

Now here is where things get tricky. While price is trying to find support off the 7600 area, two new patterns are beginning to unfold that warn of lower prices. There is the head and shoulders formation along with a newly forming bear flag (parallel trend lines).

These patterns warn that price may be fluctuating upon a hidden weakness and can result in a sell off that tests the low 7Ks. Again there is no guarantee that the weakness will unfold, but the price structure is warning of a vulnerability. Any little piece of negative news can start the snow ball rolling.

A close below the 7600 level will provide an early confirmation, while a close below 7400 will provide even more evidence in favor of the short term bearish scenario.

A Bullish Confirmation Can Change Things?

What bullish events can negate these patterns? A large outside bar or a decisive close above 8350 will changes things quickly. Remember it is NOT about predicting what will happen next, it is about gathering evidence and adjusting to NEW information as it becomes available.

If the bearish patterns I mentioned are negated, we are prepared to enter an aggressive long. Again, it is up to the market to prove itself, not for us to get stuck on irrelevant opinions.

The next push higher should at minimum test the 9K high. And since the broader structure is still bullish, a new high is very likely to follow as well.

The key to to be prepared and that is why we WAIT and constantly communicate with our members. One of the greatest skills you can learn is patience and we promote that along with sound risk management constantly, we do NOT promote action or forced trades.

High Probability Trades Are Rare?

Many who are new to trading and investing, especially within the blockchain space, come into this completely conditioned by an environment that is polluted with marketers and unrealistic expectations originating from the few lottery ticket holders that made 10,000% in a year.

People come to us looking for action and hoping that our action is better than the action of other “gurus” they have been following. Guess what? We promote patience. Our track records are green because we know how to WAIT for criteria to line up that offers greater possibilities of coming out profitable. And for those who haven’t figured this out yet, high quality trades are RARE.

This is why we have not had a trade in Bitcoin in almost two weeks. At the same time we also encourage our members to consider other markets like stocks and forex which can make up for slow periods in the blockchain space.

I write this to provide some perspective for those who are confused or trying to figure out why it is so hard to be consistently profitable. Short term trading is a tedious and often slow process often filled with watching price movements and waiting to get in. It is not fun, and you are not going to turn $500 into $5000 in a month.

You can find plenty of action elsewhere, but what is your goal? Action is fun and exciting, but is nothing more than an expensive hobby. Consistency on the other hand is not fun or exciting, but it does offer a number of ways to effectively put capital to work. Only you can choose your priorities, just make sure to understand in advance the kind of realities you will face.

Questions and comments welcome.

 

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10 Responses
  1. jlhequities

    1 reason is the wave count is incorrect, there’s several wave 1’s not being counted in your count. Not saying it won’t pullback but never should have sold IMO.

    1. Marc Principato

      Hi JLH and thank you for your perspective. I certainly agree that Bitcoin is poised to go higher in the longer term, but short term I am not convinced. Too much structure in the way. Sure, I can be wrong but I don’t lose anything by waiting.

    1. Marc Principato

      Thank you for the compliment. Waiting is the toughest thing to do, especially when the market is grinding higher. Our primary objective for our swing trade strategy is capital preservation, THAT is the key to long term performance. Everyone is only focused on what they can make NOW which may explain why the crowd is so anxious to chase.

  2. onurerbas

    I’m not sure of anything but I’ve been counting impulse waves roughly from 5.000 level, which has a historical importance for reversal. I know, it doesn’t make sense as there are multiple prior flags; but at the same time I still believe that the 5 waves have been completed at 9.000, and the support has been realized at 0.382 level , which was roughly 7.500 and which also happens to be the historical trendline at that time frame, as I mentioned at your previous post.

    I anticipate a new wave from this point, though a bit scared as the market acts weird.

    I always love to hear from you, cheers.

    1. onurerbas

      Btw, I must also add that this weirdness is not caused by the excited rushing individuals but a conflict of interest between new constitutional investors.

      1. Marc Principato

        Hi Onurerbas, and thank you for sharing. When 5 wave structures complete, it means the next structure to come is more likely corrective. The confusion sets in when people think of “corrective” as a dramatic move lower. Wave 2s and Wave 4s are typically 3 leg structures that move in a range bound way. This means you can have minor bullish moves in the range. I also accept the fact that I can be wrong and the market can just break higher whenever it chooses to. The hardest part of short term timing is WAITING for things to line up against your specific criteria. It is the process that grows the account, which has nothing to do with how the market is performing at the moment. The process identifies when certain conditions offer the most attractive reward/risk. And if the market goes higher without meeting the criteria, then we let it go. This same process protects us from tons of losing trades which is the part that most people do not see or appreciate.

        1. onurerbas

          As we speak, Bitcoin got back to 8700 and it seems to be moving up. So the current uptrend might also mean that the 5 impulse waves have not been yet completed? I mean if we are not seeing further consolidation…

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