The range is over, long live the range! Spike and channel again.
Updated
When Bitcoin is trading in a range, like the last days, many traders try to guess to which direction it will finally break out.
Or they just trade every breakout.
This thinking and breakout trading is quite dangerous. Because most of the time a range will produce little traps (false breakouts).
So how to avoid this problem? Do not trade breakouts, like "if it goes a few ticks above that resistance I am long"!
But what about the great breakout in BTC above 9.800? Yes, you would have missed that move when you do not buy breakouts this way, but trading is not about getting in every move, but to have a profitable strategy.
How to trade a range then?
The best entries are right at the resistance/support when these levels are broken! So you wait for a trap and ideally enter after a little doji (small body) candle: see trades 1 + 2.
Notice how prices went to the other side in two legs after trade 1? Do not let these swings throw you off, prices will often go the other side of the range, but not directly.
You do not always get ideal entries of course, look at trade 3. There is no trap at the top, but prices go down rather quickly, confirming the resistance line.
Trade 4: Also not an ideal entry but it did work perfectly, although the big breakout and the following spike and channel formation could not be expected at this point.
Reasons for trade 4: Prices did not quite reach the prior lows at 9300, so it is a bit risky, but there is a little bear trap when it dipped below 9400 and it is a bullish candle the support level.
After trade 4 prices shortly halted before the resistance, but then the 9800 resist was smashed and we had a big spike and channel formation. I believe the strong breakout was somehow connected to a news item (exchange bought). Or it was just a short squezze, meaning a lot of stops were being hit from everybody who got short below 9800 (in the prior range).
What is a spike and channel formation?
When I see a spike like the breakout, I always think about a possible spike and channel formation, which is just a quick upmove followed by a range, which is often tilted upwards (uptrend channel). And indeed, BTC developed this channel, which does confuse some traders, because they think the steep trend up continues. Others think it must go down in a steep correction right now. Both traders are fooled and get easily trapped by this formation, which is why it often occurs ;)
As a skilled price action trader you instead just go long at the lower side of the channel or range: see trade 5 + 6.
Again ideally follow the range rules and look for little traps to the downside!
Now prices broke through the upside of the channel with another spike and channel formation! This was not entirely unexpected, because a price action rules is, that the market will break out to the same direction in which prices traded into the range.
We saw also two legs up (blue arrows). By now we have everything seen playing out, so a downturn at 10900 could be expected.
There are now two breakout levels at 10400 and 9800, which have not been tested yet!
Feel free to comment or PM me if you have any questions. Or you can just follow me :)
Or they just trade every breakout.
This thinking and breakout trading is quite dangerous. Because most of the time a range will produce little traps (false breakouts).
So how to avoid this problem? Do not trade breakouts, like "if it goes a few ticks above that resistance I am long"!
But what about the great breakout in BTC above 9.800? Yes, you would have missed that move when you do not buy breakouts this way, but trading is not about getting in every move, but to have a profitable strategy.
How to trade a range then?
The best entries are right at the resistance/support when these levels are broken! So you wait for a trap and ideally enter after a little doji (small body) candle: see trades 1 + 2.
Notice how prices went to the other side in two legs after trade 1? Do not let these swings throw you off, prices will often go the other side of the range, but not directly.
You do not always get ideal entries of course, look at trade 3. There is no trap at the top, but prices go down rather quickly, confirming the resistance line.
Trade 4: Also not an ideal entry but it did work perfectly, although the big breakout and the following spike and channel formation could not be expected at this point.
Reasons for trade 4: Prices did not quite reach the prior lows at 9300, so it is a bit risky, but there is a little bear trap when it dipped below 9400 and it is a bullish candle the support level.
After trade 4 prices shortly halted before the resistance, but then the 9800 resist was smashed and we had a big spike and channel formation. I believe the strong breakout was somehow connected to a news item (exchange bought). Or it was just a short squezze, meaning a lot of stops were being hit from everybody who got short below 9800 (in the prior range).
What is a spike and channel formation?
When I see a spike like the breakout, I always think about a possible spike and channel formation, which is just a quick upmove followed by a range, which is often tilted upwards (uptrend channel). And indeed, BTC developed this channel, which does confuse some traders, because they think the steep trend up continues. Others think it must go down in a steep correction right now. Both traders are fooled and get easily trapped by this formation, which is why it often occurs ;)
As a skilled price action trader you instead just go long at the lower side of the channel or range: see trade 5 + 6.
Again ideally follow the range rules and look for little traps to the downside!
Now prices broke through the upside of the channel with another spike and channel formation! This was not entirely unexpected, because a price action rules is, that the market will break out to the same direction in which prices traded into the range.
We saw also two legs up (blue arrows). By now we have everything seen playing out, so a downturn at 10900 could be expected.
There are now two breakout levels at 10400 and 9800, which have not been tested yet!
Feel free to comment or PM me if you have any questions. Or you can just follow me :)
Note
Both spike and channel in my original post did not quite fit, so here is the better structure:Notice the two failed breakouts from the small trading ranges to the upside (at the top of the channel). The second trap did cause more pain, because a lot of traders now looked up after the break above 11.000 and thought the test of the breakout above 10400 would not happen, or had already happend after the first trap.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.