Bitcoin: Let It Make The First Move.

19 Eyl 2021

There was a buy signal that appeared between Friday and Saturday which is now in the process of reversing into a sell signal. What is going on here? The current location is about a 50% retrace off the low of the broad bearish engulfing candle from 2 weeks ago. It also coincides with the mid point of a recent congestion area (see blue box). What does all this mean? Mid point areas like this are highly random which means fake outs and failed movements are common. In other words for swing trades, there is no favorable probability and not worth taking any risk.

I follow a specific set of rules that help me capitalize on higher probability setups. This may sound compelling, but it also means that most of the time, I am waiting, not trading. These rules also result in missing moves on occasion as well. The method does not work for those who are profit focused, or unable to control their natural impulses. And in situations like this one, the rules work the best because they help to minimize lots of noise and would be stop outs.

The sell signal will be in effect IF the current candle closes and the low (around 47K) is taken out by the next candle. While it is possible to retest the range low from here (44K), I have no expectations of follow through either way because of the random nature of the location. It is worth noting that a lower high will be established if the sell signal confirms which could set the tone for a broader move.

So what am I looking for to go long? (I don't short this market). Anywhere between 48 to 50K is a resistance zone. Break out trades in this area are going to be very tough because of the potential faking out. I am interested in a test of 44K or 41K followed by a bullish reversal that is not too steep. Based on the reversal structure my risk should not be more than 4K points and price should NOT be closing above 48K.

In these situations, instead of trying to force trades or react to every little movement, the effective thing to do is let the market make the first move. Meaning, let it establish a confirmed break out one way or the other and THEN look for continuation patterns. For me, to satisfy this criteria, Bitcoin would have to break beyond 51K and then produce a momentum continuation such as an inside bar.

One of the most common mistakes I see is an obsessive focus on rewards. Conventional wisdom says "more is better". So the typical trader and investor grasp for the obvious. More oscillators, more moving averages, more complexity in order to gain more accuracy and achieve a higher win rate (and more rewards!). To improve your chance of winning, you have to do the opposite, you have to focus on the RISK. This is not a game of charts, or news or fundamentals. or logic. It is a mental game of balancing market risk within the boundaries of your own personal risk tolerance.

Thank you for considering my analysis and perspective. I hope you find it helpful.