A quick follow up to the email pertaining to the Bitcoin signal sent last night. The email should have gone out to the Expert Swing Trade Members, but as I was engrossed in the College Championship game, (Congratulations LSU) I did not change the email list so it went out to everyone.
So in fairness I am following it up to everyone and this is a quick update and a little more about the trade and why we decided to take it here. Do not expect a bunch of Bat patterns, or magical Fibonacci levels when we call trades. We look at order flow and levels of interest when sending out signals.
Fibonacci is simply an additional tools to provide some perspective as to levels of proportions.
Also the reason we took a second trade on Bitcoin is because our first two targets were hit from the initial signal and we like the momentum here. We lowered our risk to 1% because we still have one target left.
Selling pressure failed to materialize and push Bitcoin below the 8000 level and as we mentioned yesterday on the podcast, lingering near a resistance level is a bullish sign.
Markets that are over bought, or do not have enough buying momentum to sustain a swing higher, generally do not linger they fail quickly. We were not seeing any evidence of weakness quite the contrary, we were seeing buyers stepping in.
The engulfing candle was really the initial clue that buyers were looking to buy any dip. However since markets are made up of various traders, swing, day, position and investors, the 8200 level was being met with selling pressure.
What we were looking for was this level to be taken out, the trick with this or any other break out trade is the potential for a fake-out. The key level of resistance was 8500 and so our Buy Stop was set slightly below this but above the initial resistance level.
The actual trigger should have been closer to the 8200 level where there was selling pressure, but you don’t want to be right on the trigger level as you can get tapped in and the market fail.
BTCUSD (12 Hour)
The weekly and daily are guides for trades, but we do not just look at one or two time frames before issuing a trade. We look at several and the 12 hour provides some additional insight into order flow.
There was an initial pinbar to go long on the 12 hour which is part of the engulfing candle. This is a tough trade as you are buying an initial indication of a reversal, and the risk is it fails to push back through 8000 and results in a swing lower.
Then there was a short signal in the form or a bearish pinbar. The short signal triggered, but failed to follow through with buyers pushing price back into the 8200 area. This resulted in a short term range between 8000-8200.
These are now minor support levels that we do not want to see taken out. IF this is a strong market, 8200 should offer solid support and we should not push through the 8000 level.
However, markets often get noisy and placing your stop right at the support level may result in you getting tapped out and then the move happens. Ideally the 7600 & 7900 levels are broader support, and if this were more of a position trade our stop would be placed below 7000.
Since this is a continuation trade we expect the breakout to continue higher at least into the low 9000 area. If we are right this should happen in the next 3 days or so.
Bitcoin 12 hour chart
Issuing a trade is a lot more than throwing up some Fibb levels and identifying a pattern on the chart. We look for evidence via price action of order flow. Where is the selling pressure, or is the market buying the dips.
These are much more important than the 61.8% retrace. However Fibb has its uses. It provides additional evidence of the strength or weakness of the market as we detailed to our members over the weekend.
So did you miss the trade here? If you are not in and like the trade setup, place a limit order below the current price that still offers a Reward to Risk profile of greater than 1.0. The closer it is to 1.0 decrease your position size somewhat or adjust for the risk.
The 8520 buy level still provides an R:R of 1.15 which is reasonable for this type of trade, but reduce your risk to 0.75-1.25% of your trading capital. If you get Stopped Out a 1.25% loss is not a capital killer, and we look for the next trade.
If you have not read our article on position sizing you can read it here “Why Size Matters”
Feel free to ask any questions and great game last night to end the College Season. Congrats LSU, this season will surely be one for CF History!