Since Bitcoin retraced off the the 14K level, it has been caught in a range as high as 13500 and as low as the 9600 area. This type of corrective structure is very tough to navigate, especially for those unfamiliar with Elliott Wave. We have been writing about the high probability of a corrective consolidation off the 14K high and the market seems to be adhering to the roadmap. What does this mean in terms of accumulating more inventory or putting on a shorter term swing trade? The reward/risk along with other criteria are now lining up for some buying possibilities. Meanwhile, the internet gurus are now calling for shorts (typical demonstration of inexperience) which strengthens our argument even further.

Conventional Wisdom Means You're The Profit Target?

I often try to consider the perspective of someone who is brand new to investing and Bitcoin. You want to make what appears to be easy money in a market that seems to move in mysterious and magical ways. The first thing you will do is search the internet for “free” expert opinions and ideas (and also the lowest quality source of information you can possibly get). Standard educational conditioning and popular wisdom will lead you along the path of trying to associate market movements with some specific catalyst or event. Let me offer you a piece of helpful advice: if you want to succeed in investing in ANYTHING, you MUST unplug yourself from everything conventional. Convention is the signature of the herd mentality and that is what professionals look to capitalize on.

And in the realm of such an emotional market, fundamentals won’t mean a whole lot over the short term. There is nothing that will explain why Bitcoin sold off from 14K to a low of 9600 in a matter of a few days better than an intimate understanding of how crowd psychology drives order flow.

When a market looks its best, and you feel safe, you are at the most risk. Bitcoin, Ethereum and Litecoin looked like they were going higher indefinitely just the other day. The internet gurus were all trying to out do each other calling for the next bullish milestone. And today these same experts are calling for shorts. How long will it take you to realize the herd (along with those “experts”) are where profits come from? If you do not have your own perspective or ideas, how do you expect to capitalize on the irrational order flow generated by these reactionary participants?

Have you heard our podcast? Every Monday at 4:05 PM EDT., we produce a show that covers everything from Bitcoin, and stocks to forex trading ideas. We also cover many educational topics geared for the beginner. Check out our library HERE.

Bitcoin: Support Is A Better Place To Buy, Not Highs.
Bullish reversal candle forming at attractive location.

Instead of promoting dependency, (like most signal providers), we aim to prepare our members for what is most likely to happen based on probabilities. We also promote best practices and a defensive mindset. We don’t want you to follow, we want you to understand and have the confidence to think for yourself.

Which brings me to the current technical situation of Bitcoin. Since the peak at 14K, we have been anticipating a corrective consolidation which is now in effect. Along with this we were carefully watching two particular support levels: 10600 and the 9700 area.

Just because a support level appears does NOT mean it is guaranteed to hold. The key is to evaluate the price action (order flow) IF price reaches the predetermined area. 10600 was compromised which put the 9700 area in focus.

The current low is 9651 while a bullish reversal candle (pin bar) is now appearing. We have location and order flow lining up which also make sense in the broader context of a corrective Wave 2.

Based on how the current candle closes, we can measure risk for a possible swing trade long. As far as buying as a long term investment? It is much more attractive than buying near a range high. If the 9500 area support breaks, you will have to be willing to take some pain into the 8500 area support.

Only you can choose which type of trade is better for you. An investment means you go in smaller with the idea to cost average IF the market provides the opportunity to do so at lower prices. A swing trade means you are going all in, all out with a predetermined portion of your capital that you are putting to work (at risk). Investments are better for broader moves but involve more risk exposure, while swing trades specifically limit risk, but also have predetermined targets that aim to capture a smaller portion of the theoretically broader move.

Here is what you need to understand the most about the next potential leg higher: the current price structure is likely a broader Wave 2. This means the next leg higher is much less likely to break out to new highs. There is a better chance price establishes a lower high resistance in the 12 to 13K area.

Wave 2’s are a corrective sequence and since Bitcoin is generally strong, this structure has a greater possibility of unfolding in the form of a range. KNOWING this means we can set REALISTIC targets for our swing trade, WHETHER we are right or wrong.

This is why 20K by next month is nothing more than fluff generated by internet gurus competing for attention and more prepaid customers. Can it happen? Sure, but it is about probability, which says that scenario is less likely (based on the structure). We base our decisions on scenarios that are more likely, not less. If you are into gambling and 600% returns in a week, you can better fulfill your need for financial entertainment with a slot machine (They even accept Bitcoin online these days).

Waves Of Emotion? (No, It's Not A Love Song).

Did you know Elliott Wave provides a frame work for not only anticipating direction, but also sentiment and market conditions? We recently conducted a webinar about how to identify and count impulse waves. Knowing the sentiment associated with each wave really helps when it comes to forming realistic expectations in terms of support/resistance, risk and targets.

Wave 2’s and Wave 4’s are corrective structures. On a broader scale (such as the one we are evaluating now), a corrective sequence can take a number of days or even a week or two to unfold, especially if they are compound corrections.

The sentiment behind a Wave 2 is generally full of hope that turns into regret and pessimism as price lures investors, only to test lower prices. It is these investors and traders who become convinced the market is bearish and exit their position at the low or worse get short.

The key to such a structure is to WAIT for a predetermined level (support in this case) that is relative to the larger bullish structure. The 9700 area is the .382 of the entire bullish move since the low made in December of 2018. Notice where the bullish reversal candle is now developing?

The point is: do not go about this by feelings, by free opinions, or other following the “action” of others. Take the time to learn a framework that has worked for decades and provides enough perspective to make informed decisions BASED on patterns of human psychology. Ultimately, that is what drives prices in all financial markets.

Questions and comments welcome.

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

    jlhequities : lol !! Is this a joke 🙂 ?? Have you just read Marc’s article and making fun on purpose ??

    Else, you may want to read it again 😉 !!

  2. onurerbas

    =)

    Another nice article.

    Please take this command as a reply to your answer from your last article and the last part of this one.

    Kant, on a not so different level, also believed that the absolute knowledge of anything could not be reached by human mind as that knowledge is the outcome of a function in a given time frame, meaning that it varies over a process.

    However, Hegel proved him wrong claiming that whatever is in the field of knowledge regarding human mind and it’s desperate search for the absolutes is also present in the area of senses and could well be reached, negating the pure intellect.

    But let’s cut a very long story short. Since then, all philosophers are trying to disprove Hegel’s ontology and the system of universe. No luck so far.

    So let’s not underestimate feelings and emotions. I’m not here, talking about some magical sixth sense that provides the absolute future. But let’s say, a very basic example of it is empathy.

    Knowing that 9600 is the .382 level of the current wave according to Elliot is nowadays common knowledge, but feeling that the herd will also jump in on that level “believing” that the market will rise again is empathy.

    And that’s what I anticipate. That is actually what not so honest stock markets who provide the order book API’s to the constitutional investors anticipate. Those investors anticipate it again.

    That’s why I’ve waited for 9600 level, you also did. Now I’m in at the earliest, but will be out early as well.

    All. the best you and Andrew, you guys are great. (Even in the free articles)

  3. Romromsi

    Thanks for an article, but with all my respect to you I have to desagree with your method: Elliott Waves. I’m sure it isn’t a secret for you, that even a creator of them, Ralph Elliott didn’t make money on trading with them, he only sold his system to the funds. Principe of Elliott Waves is not about probability, it’s about forecasting: where the price must go, but the price doesn’t have any engagements. Pure price action gives more realistic expections about price moves, I suppose.
    Correct me, if I’m wrong about your usage of EW.
    Thanks.

    1. Andrew Gonci

      Your are absolutely correct. Both Elliott Wave and Wyckoff Distribution were based initially off the Dow Theory. The challenge is not relying solely on these as indicators but to use them as guides. They are for sure not crytsal ball indicators and we have written about this several times. However they do serve as a guide for sentiment cycles in the market. In the end markets go where they want. Paul Tudor Jones, arguably the greatest trader of our era used EW and of course Wyckoff developed a similar method.

  4. Marius Tibi

    This is just entry cheese to entice the people on the side to throw in their $ and join the craziness. The price will go higher because BTC was a great way to make $ for whales and sharks in the past so here we go again.

Leave a Reply