Bitcoin: Chart Pattern Clues Point Toward Test Of 12K?

Price action around Bitcoin is tough because there is a conflict between momentum and the general level. This should not be too surprising since the broader structure is corrective (broader Wave 2). Pure momentum plays are for day traders and that is not what we do. This is why paying close attention to other important elements such as the location (9750 region support) and price patterns developing around the area can provide telling clues about the underlying order flow. The key to remember is consolidations are NOT trends and strategies need to be adjusted for this particular type of condition.

Small Time Frames And Refined Sugar?

False starts, false break outs, you get short, it runs back up in your face. Your favorite internet guru gets short and shares a 2 hour chart with all kinds of details on it. Surely, they must know what they are doing, just look at all those indicators and lines on that chart.

You follow the trade idea, starts out in the green, yes! and then gets stopped out again. The guru reports that they go out for a small profit, and you should’ve known to do the same. Sound familiar? Hey, it’s free and you get what you pay for.

This scenario is all to common in this space. Most internet gurus do not have much more experience than you. They just know how to generate charts that look exciting. If you notice, most of them (especially if they have something to sell) generate A LOT of ACTION. How can you tell? They publish small time frame charts.

Meanwhile, the reality is: HIGH QUALITY SETUPS are RARE in most markets. So where are all these opportunities coming from? They are a product of inexperience and are aimed to capitalize on your ATTENTION. Want to improve? Stop consuming ACTION, it is like eating too many sugary snacks.

Refined sugar is bad for you and so is following seemingly generous internet gurus who magically appear to profit from every micro movement in the market. This article will attempt to shed some light on REALITY by exploring the elements we consider before we share a swing trade idea.

Have you heard our podcast? We broadcast live every Monday at 4:05 PM EDT. Ask us questions on the show by calling 941.745.1490. Or listen at your own convenience by visiting our podcast library HERE.

Getting Caught In The Noise? Easy Fix.

When we evaluate trading opportunities, we do NOT bother with small time frames (anything less than 12 HR). Why? All of the levels and patterns that appear on them are much more random, carry less weight in terms of order flow and offer much less potential in terms of proportional targets.

This alone helps us to filter out dozens of fake outs and random price action and focus ONLY on setups that are meaningful. This is why we average about 2 trades per month in this space, NOT 20.

How many trades do you make per month in Bitcoin or in an alt coin? Why has this gotten so hard? Just two months ago you could buy at any price, on any pattern, and it just seemed to work so easily.

The ENVIRONMENT went from trending to consolidation. If you do not have the perspective to adjust, you will give back everything you made during the easy money periods. And this may be happening to you now.

Bitcoin: Price Action Behaving Near Major Support.
Double bottom is a sign of strength.

With that being said, Bitcoin continues to probe the lower range of the corrective consolidation. 9750 is the .382 retrace of the entire bullish impulse originating from the 3150 low. THIS is IMPORTANT.

Chances are, this price region is more likely to attract buyers. Especially the more savvy who understand how these inflection points work, and know what to look for before taking any risk.

Price refuses to sell below 9K so far and instead chooses to fluctuate around the 9500 area. This is relatively close to 9750 (there is NO exactness in this game. Get it out of your system). That is the first clue of NOT so obvious strength.

The second clue is price has been spending weeks in the area and so happens to be developing a broad double bottom formation. This is the type of pattern we would expect at such a general location. Again it took WEEKS to form, not minutes or hours. This carries A LOT OF WEIGHT.

Third, recent candle stick formations are implying buying activity. The pin bar that was established by yesterday’s close is a picture perfect example.

The proportionality of the overall chart formation implies the next leg higher has potential to reach at least into the mid 11Ks. And since the overall structure from the 3150 low is clearly bullish, an attempt toward a higher high is worth taking a chance on (strong markets often reach for higher highs). So that puts the 12K area well within reason.

8500 Possibility?

What can go wrong from here? Consolidations can unfold in a variety of ways. It is very possible that this formation can produce a 5 wave structure which implies there may be one more leg lower. That can lead price toward the 8500 area before the next major leg higher begins.

There is no way to pin point this. We compensate for the RISK by using clearly defined stop orders. That is the best you can do in an uncertain environment while making decisions with incomplete information.

This is what sustainability and consistency are all about. It begins with a philosophy, organization, and a clear decision making process. We have a responsibility to our followers and focus only on QUALITY.

Our conservative mindset attracts a lot of criticism when the market goes into easy mode because our process emphasizes a strong defense. This means we will NOT jump in on a vertical move from a signal on a 1 hour time frame.

It is periods like now when all the chart cowboys are churning their follower’s capital away, we PROTECT OURS. What good are profits IF YOU CAN’T KEEP THEM?

This is why we operate with a healthy capital base and generate positive returns over the long run. STRONG DEFENSE, not dozens of trades, and we stick to our process, NO MATTER HOW EXCITING the market may get. Funny enough, the critics are quiet at the moment. I wonder why?

Questions and comments welcome.

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2 Responses
  1. Sebastian Figus

    Hi, i´ve been reading several posts of yours in Twitter and really like your approach, so tired of shorter than short term gurus that pop up every hour.
    I was looking to buy a little BTC to get started into long term trading, do you think this is a good time to buy some or wait for another retracement? The thing is that might not happens.
    Anyway, thanks for your showing us the big picture!

    1. Andrew Gonci

      Hi Sebastian, it is all about managing risk. If you do not own any come in with a small position and look to add on pullbacks. From your capital allocated to Bitcoin, use a 1/4 of it to buy some here, pulls back add some more.

      Remember this is still a speculative market and there is nothing saying it can’t go to zero also, so do not risk more than you are willing and able to lose. This will allow you to sleep at night, and not worry about the noise in the markets.

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