Entry on Dip Below Backtest of Bear Market Downtrend Breakout
Updated
Juicy price action setting up for potential opportunities after the recent volatility . We’re about to backtest the breakout of the bear market downtrend line we broke out of more than two months ago, drawn by a ray from the 69k bull market peak with the other anchorpoint being 48k in March 22’. This trendline currently sits right around 19,600. Along with it being the most significant trend line in play currently on the whole Bitcoin chart, another reason it could hold is that the 20 week SMA is lining up with it right around 19,700. Price has already broken below the 21 week EMA and these two moving averages IMO are the most important ones in determining bull vs. bear overall mkt trend for Bitcoin (been watching these ever since I started watching Benjamin Cowen three years ago), so there's reason to believe they will be fought over again, rather than a clean rip on through that holds. Also, if you draw a fibonacci retracement from the most clear low at 16.3k before the whole run-up to the local high at 25k began, then the .618 fibonacci retracement also comes in at 19,739. Very nice confluence around these levels.
In the following screenshots I will give additional analysis, along with my plan for trading (or not trading this). Given how bearish price action is (especially macro-economically) I'm going to be quite picky with taking it or not, trying to get a relatively high precision bounce, or nothing at all. At first I even detailed the investment strategy as "neutral", because given things like us being at the whim of the S&P, factors are too uncertain to have superb confidence that we hold the levels detailed and move back up, but I'm merely confident in an impulse to the upside resulting if I can get the entry at the level AND in the manner I'll describe. Very good chance that I don't get my entry and take any trade at all, but if I do get my setup then I see it as having tremendous R-R for a leveraged scalping snipe and will go in with size. I'll be frustrated if we bounce right off of all the technical confluence I described, but given the conditions I feel it's necessary to risk missing an entry instead of taking a riskier one on at a higher price. If the macro situation weren't a factor I would be scaling in more aggressively at the great levels of technical confluence and not relying on a dip below the backtest to enter.
In the following screenshots I will give additional analysis, along with my plan for trading (or not trading this). Given how bearish price action is (especially macro-economically) I'm going to be quite picky with taking it or not, trying to get a relatively high precision bounce, or nothing at all. At first I even detailed the investment strategy as "neutral", because given things like us being at the whim of the S&P, factors are too uncertain to have superb confidence that we hold the levels detailed and move back up, but I'm merely confident in an impulse to the upside resulting if I can get the entry at the level AND in the manner I'll describe. Very good chance that I don't get my entry and take any trade at all, but if I do get my setup then I see it as having tremendous R-R for a leveraged scalping snipe and will go in with size. I'll be frustrated if we bounce right off of all the technical confluence I described, but given the conditions I feel it's necessary to risk missing an entry instead of taking a riskier one on at a higher price. If the macro situation weren't a factor I would be scaling in more aggressively at the great levels of technical confluence and not relying on a dip below the backtest to enter.
Note
Going forther with my TA, the falling wedge we were in broke out to the downside and the TA is being respected well with the impulse down below it hitting the measured move almost exactly. But seeing as we're not giving up much of any progress to the downside, there's reason to expect that our dip lower could continue on down to the key levels described aroun 19,600-700.
Another reason to think this is that the measured move of the downwards breakout of the other formation we were in, which was larger, would take us to roughly 18,900. This is well below even what I consider to be my conservative entry target at 19,200, and I don't think will weigh heavily enough against all of the other technical support I've described to get hit, but it's a reason for why my stop will be placed where it will be (below 18,800).
Note
The significance of, and drawing of measured moves of pattern formations is debated and somewhat subective, but TA playing out in my eyes largely just comes down to attention drawn by traders and the significance it's given. So even though I don't obey measured moves/pattern formations religiously and rely on them to an exact degree, they are looked at/used by a good number of traders and thus are one of the pieces to the puzzle that I look at and watch to see if respect is being given to in order to understand price action developing.Note
But despite there being a very solid reason to think we can bounce at the level of TA confluence in 19,600-19,700, since this is the downtrendline that’s protecting the macro health of the chart BTC from being at risk for the market cycle low not being in, there is surely going to be a fight over it!
And so especially with things like the S&P breaking back below its bear market downtrendline breakout (which could certainly be a sign of what's to come for BTC), a clean bounce directly off of it is too risky to bet on for me.
For my ideal entry, I'm going to change where I anchor my fibonacci retracement and draw it more conservatively, from market cycle low at 15.4k, up again to the 25k high, now giving a .618 target of 19.2k, which could give a nice entry on a wick to test below the bear market macro downtrend line in the mid 19s. And I'm thinking that I'd like to put an SL past the .65 fibonacci to exit after a full break through the “golden pocket zone”, which comes in at 18,896 (so maybe an SL $100 lower). As shown in the earlier screenshot, the measured move of the breakout of the larger formation we were in (some were drawing it as a channel) takes us down right to the bottom of the golden zone around 18,900. So if you were to be the pickiest entrant and look to maximize R-R while lowering your chance for an entry being filled, waiting for an entry deep into the golden zone around the measured move target, with a stop on a break below the golden zone, I believe would do it.
Note
Looking for this trade for a short term trade for a high leverage snipe and I will have a quick trigger on exiting if it makes it into profit. What I will most definitely NOT be doing (!) is allowing myself to enter, have a resulting impulse back to the upside play out and get into some level of profit like I'm looking for, and then allow price to go back into a loss and back down to my stop below the golden zone. If and after an impulse to the upside of any real significance occurs, I will have a very tight rope on exiting. I'm planning on allowing for a pretty high pain stop loss size given the value I see in this opportunity, so I only want to be in the trade and allow possibility for it to get hit when the odds are still in my favor and I'm still risking it for the same setup as as the time of entry. But there’s a lot to be bearish about so this could definitely fail to hold even if we bounce. And just as important to note is that I will not be looking to take this trade if we hold these levels, consolidate or go back up a bit, and then make our way back on down to this target. As this would have more momentum and would shift the too far against my trade (and the expected bounce back up into acceptable profit where I can move the SL up much higher and eliminate risk) to play out. I’m looking for a relatively straight shot down into the orders nested through these huge levels, as that will have the highest likelihood for the reactive impulse back to the upside that I’m looking for, that’s seen when decisive liquidity is hit.
Given the chances for a bounce with all these technicals, and my entry being well below most of them, there could easily be a 50% chance (or more perhaps) that I don't get an entry on this trade. But if I do then I'd give it somewhere in the ballpark of 2/3 - 3/4 chance of seeing its bounce before my SL, and as I believe the potential upside is multuples more than my SL, the R-R becomes pretty spectacular.
Note
One thing I haven't talked about much is targets, but targets are really not what I'm focusing on or believe I have a huge edge in predicting. What I feel I have an edge in is seeing an initial bounce back up above the macro downtrendline breakout. I will update this post as to how this played out and whether or not I got an entry and how I handled it. The complete bull scenario would be macro-economic markets having an end of week relief rally, Bitcoin bouncing in my zone, back above the downtrendline breakout and succeeding in holding it. In which case I could get a move of thousands into profit for a few hundred in risk (though I expect BTC to in all likelihood have ranging price action this year, so I'd surely be taking profits on most before even a new local high (above 25.2k) was hit, rather than expecting a bull market to begin and holding strong.
The less favorable scenario in the event that we get a bounce but it doesn't fully play out as I hope would be a bounce and then either a rejection when we attempt to break back out above the bear market downtrendline again, or we break above it and fail to hold. In either case I'll likely move my stop up for at least half of my position to break-even after fees, likely at least a solid majority of it.
Note
Super long post that I may seem like a crazy person for completeting, but I believe it's an irregular setup in terms of technical significance and potential R-R, so I plan on risking a larger amount on it. I'm going to try and start writing posts like these more frequently in order to be able to fully flesh out my trading ideas to myself if I ample time and I'm going to be taking on significant risk, as well as to be able to look back on and improve as a trader. For anyone that read the whole thing, I hope you got something out of seeing the thought process of my analytics! I have even more I can think of saying but I'll save further thoughts on good trading practices for further posts. And if this plays out like some of my past analysis has, it would make me thrilled to hear if any of you made money after seeing or acting on any of the things I may've drawn attention to. I'd say goodnight but I'm not gonna go to sleep with even the chance that my entry and a resulting bounce back up could take place (and the jobs report coming out in the morning for the stock market). If the jobs report comes out absolutely horrid and tanks things heavily then I may very well even end up pulling my bids. But hey, thousands of hours in and every second of work on the charts is productive practice, regardless of the day's P&L.
Note
Right now over the last few hours it looks like we're been forming a bit of an ascending triangle on small time frames. Fairly cleanly cut levels for the two bottom points anchoring it. It could have easily formed a clean falling wedge had the second bottom been lower than the first before going back up. A bullish falling wedge could indeed form if it does break to the downside and bounces off of the .618 support of the less conservative way that a fib retracement could be drawn at 19739. This is an example for a way that a trade setup could develop for me to take a position different from initially drawn up, as a new bullish formation (I find wedges to be simple and reliable) forming above the key support zones could provide a new entry point that manages risk well.
But until that happens, for now this formation leans bearish and we're in a bearish trend awaiting a macro news event, so caution is wise. What I'm hoping for is sideways price action in this triangle the next few hours before the news comes out. Becuase if we break to the downside before the news then we'll either consolidate negatively and build up strength to the downside to make it more likely that a bearish jobs reaction causes 19,200 to get crushed and drop further to stop me out (like I was talking about what I wanted to avoid much earlier on this whole post), or we will have a breakdown and a push to the downside that may be unlikely to break 19,200 and will thus have a bounce off of it, but the bounce will be completely unreliable as we know that the real volume and market direction will only be seen once the report comes out after 8:30.
Note
Well price ended up breaking down right after I finished the last update, first bouncing more than $100 almost right exactly on the first .618 fib I highlighted. But then so far it seems that the most obvious spot to buy of all, a backtest of the major downtrendline right around 19,600 that was the topic of this whole post, would have given a successful entry for a safe bounce up into profit.
As price has tested and held this trendline twice already, bouncing more than $200. It's now consolidating above the first .618 fib I highlighted and attempting to turn that into support. An entry here with stops on a break below 19,730 could present some nice R-R, but I guess I'm a bit stuck with the view that I'm going to stick with my initial plan and the entry I planned for, rather than forcing a newer one with less favorable R-R and a more likely exit.
This is looking like it has a good shot at testing the top downtrendline of the descending triangle that we initially broke down out of for a breakout to the upside. So I may very well need a bit of downwards pressure from the news release in order to get my hoped for entry down lower. If this did happen then at least the recent price action bodes well for the chances of the bounce I want at 19,200 after the buy side strength and liquidity we've seen on tests so far.
Note
Rough lesson. Shouldn't have took the chance of there not being a clean reversal at 19,600, especially with it being the most signficant point of support at the bottom of a big group of technical confluence. My biggest mistake was not entering on the second time it was tested as I could have put a very tight stop at a spot somewhere just a bit below the low of the first test. Would have gotten an immediate reversal and had been in safe profit going into the jobs report that pumped the market like was the whole objective. Won't make a mistake like that again.
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