Two weeks ago we shared a swing trade long signal that triggered at 8425. We sat through the noise, and still have the position. All during that time, we continuously pointed out the technical structure that kept us from exiting early or being shaken out. This article will explain our outlook in terms of profit targets and why it is so important to avoid small time frames if you expect to participate in broader market movements like the one in play now.
Following Our Process, Not The Noise.
Just a few days earlier, Bitcoin was testing the 7700 area for a third time. Our signal triggered on 9/30 at 8425 and has not been cooperating since. What kept us in this position throughout the noise? And more importantly what price area presents a REALISTIC profit target for our swing trade idea?
Keep in mind, we often talk about PROCESS and part of ours is: WE DO NOT SHORT BITCOIN, no matter if it is in a perceived bearish trend, or in the face of a sell signal.
We also SIZE our trades very strategically, which makes it easier to hold through NOISE and adverse movements.
And we AVOID watching small time frames because they do NOT offer relevant information for our SWING TRADE. These guidelines alone help to stack probabilities in our favor, and if you haven’t figured it out by now, timing markets successfully is all about understanding probabilities.
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Bitcoin: Resistance Break Puts Bulls Back In Control?
Here is our adjusted technical outlook:
1. The 8500 lower high resistance (50% retrace of 3150 to 14K) has been compromised. Along with a decisive close above this level, this confirms that bullish momentum is in play.
2. The mid 9K area is the next minor resistance. Our profit targets are placed below the 10K psychological resistance level.
3. The lower 9K area which was the previous range support will likely act as a new resistance. Some price noise can be expected here.
4. The minor double bottom formation off of the 7600 area which overlaps with a previous Wave 4 consolidation can very well be the bottom of the broader Wave 2 that Bitcoin has been in since June. This translates into potential of at least the 10K area.
5. It is too early to tell if this is the beginning of a broad Wave 3. (Price will need to take out the 13 – 14K area to confirm). So DO NOT get overly excited by all the HYPE that is going to follow the current price spike.
6. If you are NOT in a swing trade, NOW is NOT the time to buy. The next minor retrace or momentum continuation pattern will offer a more sensible and calculated entry. Reacting is for members of the herd, do NOT react.
Squeeze Catch You Off Guard Again? Here's Why:
Were you bearish along with every other reactive charting guru on the internet? If you got caught in the short squeeze or got taken completely off guard, it is most likely because you are stuck on small time frames or following someone who is.
Small time frames like 3 hour, 2 hour, 1 hour, 30 minute charts are full of randomness. You will find all kinds of triangles, wedges, pennants and other chart patterns because they will appear RANDOMLY. This is actually NOT the problem that catches less experienced traders and investors by surprise.
The problem is MIXING time frame expectations. If you are watching a 1 hour chart, and expecting a 2K point move in your favor, you are MIXING a day trade time frame with a swing trade target expectation.
Expecting a swing trade target means you are also assuming swing trade risk, which is MUCH HIGHER than day trade risk in terms of adverse price movement.
If you use a day trade stop with a swing trade target, you will get stopped out frequently. And for those who are not experienced, this usually leads to removing the stop loss order altogether and basically becoming married to an investment from often unattractive price levels.
This is easily fixed. If you are interested in broader moves, then FOCUS on broader time frame information. Your reward/risk should be determined from a daily chart at minimum.
This is how we evaluate our swing trade ideas, and why we were able to stay in our current trade, even though price action was not cooperating.
We had enough information to give the 7600 to 7700 area a chance to prove itself instead of reacting to a random pattern on a 1 minute chart OR to some self proclaimed “expert” screaming about a 5K target by tomorrow.
Stop following and start learning how to develop a perspective and process. All the information you need to make sound decisions is on your daily chart. It may seem overwhelming at first because there are a number of elements to consider. Start with a simple concept like support and resistance. As you become familiar with the variety of ways to recognize this information, you can then add another element, like chart patterns. One thing at a time because MORE IS NOT BETTER in this game.
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