Bitcoin: Stuck But Probability Still Favors The Bulls?
Updated
Bitcoin is now poised to push into the 9Ks thanks to the development of the higher low formation around the 7830 area which coincides with a triple bottom as well. Formations and price structures are just another way of expressing probabilities and these patterns clearly favor higher prices at the moment. In this article I will highlight the elements that keep us in our swing trade long that we entered 3 weeks ago (while the general consensus among the "experts" has been bearish).
Over the previous weeks, I have been writing about the high probability of false breakouts in this environment, particularly to the short side. And so far, I continue to be right. How do I know this? Is it through some magical combination of 15 oscillators on my chart? My perspective comes from having a clearly defined structure and purpose behind my evaluation and trading processes. As a swing trader, I am ONLY interested in information that provides clues relative to broader market movements. And knowing whether or not this particular market is in a trend on THIS time frame is the key to gauging REALISTIC expectations. (You will not gain this perspective from a 1 hour chart).
Here are the elements that allow us to maintain our long from 8425.
1. Triple bottom formation around 7600 support. This minor support level has been in play for almost a month. It tells us one very important thing: Bitcoin IS NOT bearish. Weakness usually takes hold and follows through FAST, and that is NOT happening here.
2. Higher low formation established at 7830 area. Every time Bitcoin tries to push lower, the selling is being absorbed at slightly higher prices. This provides evidence that accumulating continues to take place while luring more shorts.
3. Large bullish candle off of support area. After a couple of inside bars, the appearance of a larger bullish candle is now in play. This further confirms that buyers are active around the 7600 to 7800 area.
4. NO TREND. The fact that Bitcoin cannot break below 7600 or above 8500 makes for a strong argument that this market is inside a range within a larger range (14K to 7600). Are we near the lower part of the range, or higher part? The answer points to where price is more likely to go from here. (That's why shorting break outs here is a very HIGH risk idea).
5. A break and close above 8500 should trigger another wave of short covering. Based on the broader location, and the technical developments, probability favors a larger magnitude short squeeze. This is where a positive news catalyst can come out of no where and catch unsuspecting 1 hour chart enthusiasts off guard. A move like this can lead to a test of the lower 9Ks over a multi week period.
6.Any bear arguments left? We do NOT short Bitcoin, but always evaluate the bearish perspective. The only thing that can negate the bullish argument is IF price lingers around this area for too long. Why? Just like when too many shorts get caught, too many longs can get lured the same way. When order flow becomes dramatically imbalanced, any little thing can trigger the herd running one way or the other. What is too long? 3 to 4 weeks on this time frame.
I am bullish on Bitcoin and all of my articles favor the long side, BUT that doesn't mean I am always buying. I do have the ability to recognize when the bears are in control and simply step aside until conditions favor buying again. At the moment I do not know why anyone would be going short when context, structure and location are favoring the long side (even in this range bound environment). Price would have to break and close below 7600 for me to go back to a more neutral outlook.
This is a game of probabilities and long term success has very little to do with being "right". In December of 2017, EVERYONE was right, while today most of those "experts" no longer participate. Why? Because timing any financial market has everything to do with how you manage RISK. Our swing trade strategy is right slightly more than 50% of the time at the moment, which is not stellar, but our performance is still positive. It is our defensive mindset and focus on preserving capital that generate positive results, NOT just winning trades. What good are profits if you are unable to keep them?
Over the previous weeks, I have been writing about the high probability of false breakouts in this environment, particularly to the short side. And so far, I continue to be right. How do I know this? Is it through some magical combination of 15 oscillators on my chart? My perspective comes from having a clearly defined structure and purpose behind my evaluation and trading processes. As a swing trader, I am ONLY interested in information that provides clues relative to broader market movements. And knowing whether or not this particular market is in a trend on THIS time frame is the key to gauging REALISTIC expectations. (You will not gain this perspective from a 1 hour chart).
Here are the elements that allow us to maintain our long from 8425.
1. Triple bottom formation around 7600 support. This minor support level has been in play for almost a month. It tells us one very important thing: Bitcoin IS NOT bearish. Weakness usually takes hold and follows through FAST, and that is NOT happening here.
2. Higher low formation established at 7830 area. Every time Bitcoin tries to push lower, the selling is being absorbed at slightly higher prices. This provides evidence that accumulating continues to take place while luring more shorts.
3. Large bullish candle off of support area. After a couple of inside bars, the appearance of a larger bullish candle is now in play. This further confirms that buyers are active around the 7600 to 7800 area.
4. NO TREND. The fact that Bitcoin cannot break below 7600 or above 8500 makes for a strong argument that this market is inside a range within a larger range (14K to 7600). Are we near the lower part of the range, or higher part? The answer points to where price is more likely to go from here. (That's why shorting break outs here is a very HIGH risk idea).
5. A break and close above 8500 should trigger another wave of short covering. Based on the broader location, and the technical developments, probability favors a larger magnitude short squeeze. This is where a positive news catalyst can come out of no where and catch unsuspecting 1 hour chart enthusiasts off guard. A move like this can lead to a test of the lower 9Ks over a multi week period.
6.Any bear arguments left? We do NOT short Bitcoin, but always evaluate the bearish perspective. The only thing that can negate the bullish argument is IF price lingers around this area for too long. Why? Just like when too many shorts get caught, too many longs can get lured the same way. When order flow becomes dramatically imbalanced, any little thing can trigger the herd running one way or the other. What is too long? 3 to 4 weeks on this time frame.
I am bullish on Bitcoin and all of my articles favor the long side, BUT that doesn't mean I am always buying. I do have the ability to recognize when the bears are in control and simply step aside until conditions favor buying again. At the moment I do not know why anyone would be going short when context, structure and location are favoring the long side (even in this range bound environment). Price would have to break and close below 7600 for me to go back to a more neutral outlook.
This is a game of probabilities and long term success has very little to do with being "right". In December of 2017, EVERYONE was right, while today most of those "experts" no longer participate. Why? Because timing any financial market has everything to do with how you manage RISK. Our swing trade strategy is right slightly more than 50% of the time at the moment, which is not stellar, but our performance is still positive. It is our defensive mindset and focus on preserving capital that generate positive results, NOT just winning trades. What good are profits if you are unable to keep them?
Note
This is the chart I shared in our chat near the LOW of the sell off. The blue circle represents the fake out zone.
1. Probability of LOCATION carries MORE weight than small time frames.
2. Bitcoin is NOT trending. These sharp reversals are a result of the extreme bearish sentiment. Many of these participants are using trend following strategies.
3. The low to mid 9Ks is the next relevant resistance.
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