Just a few days earlier, Bitcoin squeezed to 8600 and here we are back between 7900 and 8K. What is going on here? In a nutshell, NOTHING. Although these type of moves will stimulate a lot of hype and over reacting loud mouths, Bitcoin continues to prove one major argument: there is NO trend. No trend means price can gyrate aimlessly and produce countless patterns randomly that offer little to no timing advantage. This article will shed some technical light on the most recent bearish movement, and at what price it is likely to fake out (while luring lots of mindless shorts).
What Are You Basing Your Decisions On?
One of the most important parts to any strategy on any time frame is being able to identify if the market you are trading is in a trend or NOT. There are 3 modes of trend: bullish, bearish or range. Keep in mind it is possible to have different modes in play on different time frames simultaneously and this is where most new traders and investors get confused.
Knowing which mode to pay the most attention to shapes the rest of the decision making process. I stress this over and over because on the time frame that we focus on (swing trade), there is NO trend. Meanwhile 1 hour chart traders may be over reacting to the recent bearish price action by calling for unjustified targets like 5K by next week.
If you are NOT a day trader, then do NOT pay attention to anything less than a daily time frame. This is where the most relevant information for your decision making process exists. Not the financial entertainment outlets, not the 1 hour chart gurus or the guy on Twitter bragging about 1000% returns his short trades.
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Bitcoin: Fake Outs More Likely?
So let’s get into the technical reasons why Bitcoin is not in a bearish trend and what that means in terms of potential swing trade opportunities.
1. Progress is defined by the 14K high and 7600 low. As long as price stays within this 6500 point range, it is NOT trending on the larger time frame.
2. It is possible to have ranges within ranges. The 8500 resistance to 7600 can be considered a smaller range. If price cannot push through this minor high or low, then the majority of patterns that unfold carry little weight (they are random).
3. The 7600 to 7400 region is a high probability fake out zone relative to the bullish price structure established during the recent short squeeze to 8600. In non trending markets, fake outs near range highs or lows are very common. Small time frame traders are usually caught off guard around these locations (which creates the momentum that culminates into a sharp reversal). See blue circle on chart.
4. IF Bitcoin CLEARS the 7600 support decisively (no long tail candles or bullish pin bars), then the 7275 major support zone comes into play. This zone extends as low as the 5250 area. This scenario would offer the most attractive opportunities for investors or position traders.
5. IF Bitcoin fakes out within the 7600 to 7400 area or higher, it will most likely generate another swing trade long which still has potential to test the 9K region.
6. Lower highs mean very little IF clear and decisive lower lows are not established. DO NOT get lured into the false break out.
Where Are All The Experts?
Trend following strategies will not perform very well in this environment (unless you are day trading). Have you noticed since Bitcoin has not made any significant progress, many of the “experts” that were loud mouthing in 2017 are no longer sharing their opinions? As the OLD saying goes “Don’t confuse bull markets for genius.” Anyone can make calls, or appear to be an expert when price moves in one direction for a prolonged period of time.
Reality markets are what you are seeing now. Markets range around 80% of the time, and why you NEED to understand what information carries the most weight in these type of environments.
To give you an idea: in range bound markets, the areas to pay most attention to are the highs and lows of the range. The area to pay LEAST attention to is the middle because randomness is greatest in such a location.
Our objective right now is to evaluate and identify fake outs near the low of the range. That is what probability favors, whether it actually plays out that way is a different story. Our best practices and defensive measures are what protect our account from erosion and large adverse moves, no matter what our win rate is.
Keeping your capital intact is the name of the game. It may sound logical, but the typical trader does NOT operate on logic, they are stimulated by fear and greed. Chasing profits leads to an empty account, while WAITING for particular setups and scenarios has the opposite effect.
Although many in this business would like you to think otherwise, ACTION does NOT PAY. WAITING PAYS and our performance record proves that over and over again. Let the market come to you, no matter how long it takes. That is how we operate, especially in this uneventful range bound environment.
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