Bitcoin 10K has been compromised after a recent spike to the 10,300 area, but the real level which has proven itself over and over again is 9750. This is where buyers continue to step in, BUT what if it gets compromised as well? The key to navigating this environment is understanding the nature of the broader range. Precise levels are only reference points and a reasonable amount of wiggle room is required before one can make a judgement in terms of a trend. This article will explain how we evaluate the current price action and how we will adjust IF the market provides evidence of a new trend.

Trends Come In All Different Time Frames?

How do you define a trend? For us it all depends on the time frame in question. As a day trader, you can find trends on multiple small time frames, which can even exhibit bullish and bearish patterns at the same time. Confusing? Sure, if you day trade. We don’t.

Since we focus on swing and position trades, the definition of a trend will require evaluating broad price structures which can take months to play out. Knowing whether the environment is trending or not for your specific time frame of trade is what should further shape your decision making process. This is the key to effectively navigating the Bitcoin environment especially right now.

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Bitcoin: Consider The Location, Not The Candle Alone.
Ugly price action does not equate to a bearish trend.

We have mentioned is numerous times to our followers over the recent months. Bitcoin is range bound. It has been since it established the 14K top and the 9K bottom. Price action inside this 5K point range is for the most part, meaningless noise.

What about all the dramatic movements from 9K to 12K, back to 10K, and so on? Aren’t those mini trends? Yes, but their potential is very limited when compared to the broader chart structure.

9750 is the .382 proportion of the entire Bitcoin rally from 3150 to 14K. Once the peak was established, this level could be projected in advance. And so far, buyers have proven themselves consistently around this level.

Keep in mind, there is a margin of error around such a large magnitude level. Inexperienced traders seem to expect precision to the point where if price breaks a couple of points lower, “the major support has been broken! Sell everything!”.

The reality is these levels serve as reference points that require the allowance of wiggle room. Bitcoin tested as low as the 9K area before finding new buyers. As long as price does NOT close below 9K, it is NOT making progress and is more likely to reverse.

Why is this so important to understand? Because every time Bitcoin retraces a couple of hundred points, everyone gets into “trend” mode. Internet gurus start projecting unreasonable profit targets  for their new short positions which were taken on signals from a 2 hour chart.

If you employ trend following strategies in a broad consolidation, you will most likely get faked out at a major support or resistance level. This is particularly true if you are not experienced enough to keep your expectations (and profit targets) within the magnitude of your chosen time frame.

For example, many will call for shorts when Bitcoin moves from 10,300 to 9800 and project profit targets around 8K. Meanwhile, probability favors broad bullish reversal patterns anywhere between 9K and 9750.

If you are going for a quick day trade, that is one thing, but to expect a huge bearish move around such a bullish location is not in line with the market’s probabilities. As a market timer your goal should be to align with probabilities, NOT against them.

What If Bitcoin Breaks The 9K Range Low?

It can be argued that the range from 9K to 14K is just one giant higher low formation compared to the 3150 low. In a broader sense, this consolidation maintains a bullish bias, but what if this changes?

IF price closes below 9K, that would be considered progress based on the criteria we evaluate. In that scenario, it would be within reason for price to test the 8500 area before possibly attracting new buyers.

So this is what we do now: Wait for bullish swing trade setups to go long anywhere between 9K and 10K. And at the same time, have capital prepared to accumulate more long term inventory IF price tests 9K or lower.

It is that simple. There is NO reason to sell or go short near lows when the time frame that we operate within continues to provide evidence that the market is consolidating, and NOT trending.

Even though we have gotten stopped out of some of our recent swing trades, the loss has been relatively minor compared to how much we saved by avoiding the erratic price action and numerous fake outs that are typical in this environment. In fact, our account is still green for the year.

The main driver of our swing trade strategy is capital preservation which emphasizes DEFENSE, NOT profits. We don’t sell lifestyle here, we provide the framework and foundation for long term consistency.

Are you being distracted by over exaggerated opinions, trade calls, or dramatic price moves? The solution begins with knowing how to properly define a trend on the time frame that you operate within. And if you are not that organized yet, then the best way to begin this process is by focusing on the larger time frames ONLY, while playing just ONE side of the market.

It will be boring, but the simplicity will help to reduce confusion and more importantly keep you in the game longer. When the broader trend returns, you will have more experience, confidence and ability to evaluate opportunities, oh yeah and still have capital to invest.

Questions and comments welcome.

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