Bitcoin 20K Break: New Wave Count?
Bitcoin has broken the 20K major support which means the next level of support is around the 14K area. IF Bitcoin cannot get back above 20K over the next couple of days, then a significant change to the longer term wave count has to be considered. In this article, I will explain some scenarios that can play out for the coming week.
The bullish scenario: The lower low established yesterday confirms that momentum is BEARISH. While the 20K area in general offers a potential location for a temporary short squeeze, it is NOT within reason to expect much from a bounce. Look to the next resistance levels to measure long potential. The next resistance (assuming the 20K area holds), is the 25 to 28K AREA. KEEP IN MIND, price may not have the strength to reach 28K so while it is a possibility, the probability is LOW. If you are looking for a counter trend swing trade, you NEED to accept the fact that the probability of follow through is LOW, even if it runs 1 or 2K points. Taking longs in this environment would be more feasible as a smaller time frame trade, like a day trade but if you are unable to respect the risks, do not bother.
Picking the bottom: It's a gamblers game. Everyone called a 25K bottom, then 20K bottom, and now what? While the 20K area may still be in play, price needs to get back above 20K in order to confirm that it is still a support. Bottoming is a PROCESS and can take days or weeks to develop and confirm. Also the macro economic environment plays an important role. If you ignore this, again you are simply GAMBLING in an environment that does NOT favor longs.
The bearish scenario: IF price stays below 20K, momentum can follow through to the next support which is the 14K AREA. That sounds like some good potential for a swing trade on the short side, right? Selling into the current low is HIGH RISK because a squeeze can develop quickly around the 20K area. Short squeezes can also be very irrational and run a LOT further than you might "think" (stop thinking). The way to play the short side is to WAIT for the next resistance area. The aggressive zone to watch for is the 22 to 24K area, while the more conservative zone is the 25 to 28K area. IF price manages to get above 28K, then the market may be getting into a consolidation rather than going for a new low.
What the 20K support break means as far as the broader wave count: It is not labeled on this chart, but initially, I considered the peak at 69K part of a broad wave 4, which I have mentioned quite often when Bitcoin was breaking supports in the 50ks. One of the main rules of an impulse wave is that Wave 4 cannot overlap the price area of Wave 1. If you look back at a weekly chart, the peak of Wave 1 (2017 to 2018) was basically 20K. This rule can be tricky on very large magnitudes, so it is important to give it some room for error. IF price cannot get back above 20K over the next week, I will consider it an overlap. This means the broader structure is NOT an impulse wave, and the 69K peak was a Wave 5. That means the current wave structure may be a broad Wave 2. If that proves to be true, it then becomes within reason to see a test of the Wave 1 bottom which is lower than 5K.
Now do NOT misunderstand this, I am NOT expecting price to test below 5K anytime soon, BUT it may be a possibility and the RISK must be accounted for in terms of investing over the long term. With this in mind, there is nothing wrong with investing into lows BUT keep the size SMALL. While the probability of testing below 5K is low, 10 to 14K is within reason. Also you can invest when the price structure and environment IMPROVE, which has yet to begin.
Thank you for considering my analysis and perspective. I hope you find it helpful.
The bullish scenario: The lower low established yesterday confirms that momentum is BEARISH. While the 20K area in general offers a potential location for a temporary short squeeze, it is NOT within reason to expect much from a bounce. Look to the next resistance levels to measure long potential. The next resistance (assuming the 20K area holds), is the 25 to 28K AREA. KEEP IN MIND, price may not have the strength to reach 28K so while it is a possibility, the probability is LOW. If you are looking for a counter trend swing trade, you NEED to accept the fact that the probability of follow through is LOW, even if it runs 1 or 2K points. Taking longs in this environment would be more feasible as a smaller time frame trade, like a day trade but if you are unable to respect the risks, do not bother.
Picking the bottom: It's a gamblers game. Everyone called a 25K bottom, then 20K bottom, and now what? While the 20K area may still be in play, price needs to get back above 20K in order to confirm that it is still a support. Bottoming is a PROCESS and can take days or weeks to develop and confirm. Also the macro economic environment plays an important role. If you ignore this, again you are simply GAMBLING in an environment that does NOT favor longs.
The bearish scenario: IF price stays below 20K, momentum can follow through to the next support which is the 14K AREA. That sounds like some good potential for a swing trade on the short side, right? Selling into the current low is HIGH RISK because a squeeze can develop quickly around the 20K area. Short squeezes can also be very irrational and run a LOT further than you might "think" (stop thinking). The way to play the short side is to WAIT for the next resistance area. The aggressive zone to watch for is the 22 to 24K area, while the more conservative zone is the 25 to 28K area. IF price manages to get above 28K, then the market may be getting into a consolidation rather than going for a new low.
What the 20K support break means as far as the broader wave count: It is not labeled on this chart, but initially, I considered the peak at 69K part of a broad wave 4, which I have mentioned quite often when Bitcoin was breaking supports in the 50ks. One of the main rules of an impulse wave is that Wave 4 cannot overlap the price area of Wave 1. If you look back at a weekly chart, the peak of Wave 1 (2017 to 2018) was basically 20K. This rule can be tricky on very large magnitudes, so it is important to give it some room for error. IF price cannot get back above 20K over the next week, I will consider it an overlap. This means the broader structure is NOT an impulse wave, and the 69K peak was a Wave 5. That means the current wave structure may be a broad Wave 2. If that proves to be true, it then becomes within reason to see a test of the Wave 1 bottom which is lower than 5K.
Now do NOT misunderstand this, I am NOT expecting price to test below 5K anytime soon, BUT it may be a possibility and the RISK must be accounted for in terms of investing over the long term. With this in mind, there is nothing wrong with investing into lows BUT keep the size SMALL. While the probability of testing below 5K is low, 10 to 14K is within reason. Also you can invest when the price structure and environment IMPROVE, which has yet to begin.
Thank you for considering my analysis and perspective. I hope you find it helpful.
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