The dramatic break and close below the 9K range support is a sign of progress compared to the previous 3 months of consolidation. The change in price structure sheds light on new levels to consider both for swing and position trade strategies. In this article I will explain what has changed and how we are adjusting to it. Should you get out of all your coins now? Not unless you are feeling generous enough to donate them to the smart money who is accumulating at wholesale prices.

Don't React. Adjust.

Successful market timing, whether you are day trading all the way to investing, requires the ability to anticipate, evaluate and adjust. Many new to this arena usually come with the common misconception that timing is about being able to “predict” where price will go, or even worse, making decisions based on obsolete information like news events because “it feels right”.

The irrational forces of greed and fear are what move ALL markets. News, or other information that can shape perceptions of the future will continuously shape how the herd reacts to information in light of their emotions.

And as a result of this “feedback” mechanism, there is a very HIGH degree of randomness that all participants must deal with. In order to succeed in such an environment, a PROCESS must guide your actions. The process can take many forms, but it must take its cues from unfiltered market information.

In this article I will explain how we interpret recent market information and how it shapes our expectations in regard to our swing and position trade strategies.

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Bitcoin: Retrace Higher Can Unfold In Bearish Environment.
Broad lower high can develop between here and 10K.

Our swing and position trade strategies follow a very specific set of rules. One of the rules that is common to both is that we do NOT short these markets. It is very possible to generate consistent returns by only operating on one side of the market and our track record has proven it.

Did you know that the average “active investor” under performs a major market index by 6.5% annually? Do you know what that means? It means the more you trade, ESPECIALLY without any specific rules or guidelines, the more likely you will lose. Trading only ONE side of a market helps to alleviate this (less errors, fakes outs, stop outs).

This is why you should NOT get lured by gurus claiming to make 300% a day shorting Bitcoin. Even if they are showing that kind of return, chances are it is the result of random reinforcement, AND you will most likely NOT be able to replicate such short term trades.

I mention these things because we operate on a level that is realistic to follow. By observing the recent price developments in Bitcoin, our decisions are now shaped by the following:

1. The break and close below the 9K range low confirms bearish momentum is in play. For swing trades this means STEP ASIDE and WAIT for some form of price stability before considering setups. (The recent minor double bottom around 8K is a form of stability).

2. The close below the 8500 level is further confirmation of bearish momentum because that is the 50% retrace of the 3150 low to 14K high. This increases the chances of price testing the next major support area which begins around the 7275 level.

3.The next MAJOR support region is the 7275 to 5464 range (relative to the 61.8% retrace of 3150 to 14K). IF price revisits this zone, probability favors broader bullish reversal structures. This would be attractive for both swing trades and position trades (long term inventory).

4. IF price manages to rally off the recent minor double bottom at 8K, the next reasonable resistance is the 9718 to 10249 area. This is the reference point for profit targets IF any swing trade setups appear and trigger.

5. In terms of Elliott Wave, if this is a large degree Wave 2 (most likely), according to the rules, price can retrace 100% of Wave 1 (3150), and still be within the boundaries of a bullish trend (since Wave 1 is bullish).

Overall, even though bearish momentum is in play, we are open to aggressive swing trades (smaller size) AND to accumulating more inventory as price gyrates between 8K and the next major support region.

Knowing that probability favors lower prices does NOT justify changing our rules in order to chase the short side of the market. Instead we evaluate the next levels, adjust our sizing in order to compensate for the elevated risk, and then just WAIT.

Either the market will comply with these possibilities, OR it will provide a completely NEW piece of information, like an unexpected bullish outside bar (which will catch all the bears off guard).

No Process? Welcome To The Land Of Random Results.

No predictions, no reactions, just observing and adjusting within the boundaries of our rules. When the price action lines up at a particular level, we can measure our risk and consider a trade (like we recently sent out upon the minor double bottom). It is a passive mindset that lets the market guide our decisions, NOT the other way around.

There is NO magic strategy, system or tool that will give you any advantage in these highly competitive financial markets. In order to gain such an advantage, you have to be able to filter market information in a way that considers the natural tendencies of price action.

These intangible elements can be found within the subtleties of a chart, but from there this information has to be compared against the logic of your particular set of rules. If this sounds like a lot to consider, well it is.

The best place to begin practicing this type of passive mindset is to first focus on developing rules to guide your decisions. Without any type of organized thought process, you are much more likely to be subject to the emotional roller coaster of random reinforcement.

Start by articulating what type of trades you are interested in: day trades? swing trades? position trades? If you do not know the difference, then you will not be able to develop a coherent rules based process. Position trades are the easiest to manage because they require the least attention and restriction, BUT they are also the least eventful. The more action you want, the steeper the learning curve, the choice is yours.

Questions and comments welcome.

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1 Response
  1. Mindaugas Gabalis

    Did you consider a scenario that move from 3k to 14k were impulse wave (B) of prime correctional wave 2 and we are now entered wave C of that prime wave 2. Thus the move from the very beginning to 20k would apply as prime wave 1. Thoughts?

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