Bitcoin: Middle Of The Road Action Will Erode Your Account Unless You Do This?

Bitcoin continues to confuse, especially those reactive types who obsess over smaller time frames. Either way, if you do not have rules to help filter this type of price behavior then you are more likely to react. Many new to short term trading do not understand the difference between reacting and letting the market determine your result. In this article I aim to provide perspective on why probability still favors the long side and how our passive mindset helps to remove our opinions from trade ideas.

Don't Choose For The Market?

Is Bitcoin going to break higher or lower? We get that question a lot. If you follow analysts who focus on smaller time frames and do not have a strong grasp on market context, you will find yourself very confused, especially when facing a string of losing trades.

So can we just blame an indecisive market for our problems, or is there something we can do to get better results? Even if better results means reducing the amount of losing trades?

The best solution we found was to remove as much bias and opinion from our trades as possible. How? By letting the market trade for us. Let me explain.

Have you heard our podcast? We cover everything from Bitcoin investing to stocks, options and even forex trade ideas. Check out our library HERE.

Bitcoin: How Do You Enter A Trade?
Higher low formation developing points toward bullish probability.

It all has to do with how you decide to enter and exit the market. When you like a trade idea, do you manually press the buy button on your trading platform? Or do you place a stop or limit order at a predetermined price which may or may not be anywhere near the current market price?

Let’s take it a step further and evaluate how your choice of entry process affects results in light of the current Bitcoin price action.

Bitcoin is fluctuating around the 9800 to 10,300 minor support zone. Why minor? It is proportionate to the recent bullish swing originating from the July low to the August peak. This swing is much smaller than the swing from 3150 to 14K, so any levels that are derived from it are of a lesser degree.

And that brings me to the 9750 level which is the .382 retrace of the 3150 to 14K swing. It is a major support and carries greater weight because it is derived from a much larger swing.

Since price is still fluctuating around such SUPPORT levels, it is still more likely to find buyers. ESPECIALLY in the context of a broad RANGE. Why would anyone call for shorts around the support region of a market that is NOT trending?

SO this information provides perspective that carries more weight compared to information you will find on smaller time frames. It all sums up to: The overall probability and profit potential still favor long setups.

So where does the order placement fit in? The inexperienced trader who is anxious to generate a profit and NOT miss out, will just buy for any reason around this area.

The intuitive (and WRONG) thing to do is analyze a smaller time frame and look for anything that agrees with a bullish bias. Once you find any little thing agreeable, you use it to justify jumping in now. That is being reactive.

It may work on occasion (like in a very strong broader trend), but this behavior will lead to more stop outs, fake outs and errors in a consolidating environment. Why? You are exposing yourself to MORE randomness.

Compare this “feel good” enter now strategy to the more passive placing of orders in advance. Instead of reacting now, the market decides if you get to participate or not. This means YOU, your feelings, anxieties and anything else going on in your mind, no longer interfere with the trade idea.

We recently shared a Bitcoin swing trade idea with an entry price of 10,625. Although price looked like it was setting up for a long, it NEVER reached the entry order.

Since the market did NOT let us participate, we managed to avoid the indecisive and sharp retraces back to the 10K level. This could have easily stopped us out. And for other traders, mislead them into getting short only to watch price retrace higher again.

Ruling You Out Of the Decision Process?

Preserving capital is the main priority of our swing trade strategy and using specific rules for every aspect of the trade process helps to maintain that objective. Consistency for short term trade strategies therefore is a product of the quality and adherence to YOUR RULES.

The rules are what help to remove your opinions, bias and reactive behaviors from the equation. In this way, they facilitate a passive mindset which is another way of letting the market come to you rather than chasing the market.

There is no one size fits all when it comes to rules. And before you can develop rules of a process that will be effective, you must FIRST clearly define the type of trader you want to be.

A day trader will operate by different rules compared to a swing trader. If you do not understand the difference, then you NEED to figure that out. Mixing strategy types is one of the most common mistakes even traders with some experience make.

You have to start somewhere so take baby steps and experiment with a small set of SIMPLE rules. For example: if you are a swing trader, what criteria do you consider to define a trend vs. a range? Your answer becomes a rule.

Over time you will tweak and adjust to these constraints to be more in line with your personality type and expectations. Just keep in mind that following some form of structure is better than nothing at all.

Questions and comments welcome.

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

      Hi Mindaugas,

      Thanks, glad you find my article helpful. A swing trade is defined by its time horizon which is typically a couple of days to a few weeks. The goal of a swing trade is to capture a broader market move, which means it will also require much wider stops compared to a day trade for example.

Leave a Reply