Bitcoin: Two Weeks And Second Buy Signal Appears?

13 Okt 2019

We have been long Bitcoin for just over two weeks, and today it has generated a second buy signal in terms of our swing trade strategy. Since price action has been very random and indecisive, we will not add to our swing trade long, because there is no need to increase our risk. In this article I will point out what has changed since the short squeeze off of the 7600 support, and why WAITING has allowed us to weather the randomness successfully.

It all begins with knowing where you are on the roadmap and what is reasonable to expect at such a location. Evaluating larger time frames and using proven frameworks such as Elliott Wave help to paint a realistic picture. Since the 14K area high established months ago, Bitcoin has been in a corrective consolidation, NOT A TREND. This is a key piece of information since it shapes our tactics and expectations as the market unfolds.

Here are the technical points that we are considering in light of the current price structure:

1. The 9K range support break WAS bearish BUT Bitcoin weakness has FAILED to follow though. Moves like this lure lots of small time frame shorts and stimulate lots of over exaggerated price projections. These are the participants who further contribute to the buying pressure that culminates into a dramatic short squeeze once they all realize bearish order flow has been absorbed. Although 5K is technically possible, the probability is relatively LOW.

2. There is a CLEAR double bottom formation established around the 7600 to 7700 area which provides evidence that buyers are present.

3. There is a higher low established at 8220. This shows buyers are not only present, but NOW in control. It is too early to call this a trend in terms of the bigger picture, BUT typically higher lows are followed by HIGHER HIGHS.

4. As far as Elliott Wave, the broad price structure (14K high to 7600 low) fits the rules of a Wave 2 correction. IF the 7600 area is NOT compromised, the next bullish leg can be the initial wave of a broad Wave 3 (which can lead price to test 14K over the next couple of months). Keep in mind, IF the 7600 support is compromised instead, it increases the chances of price testing the next support zone of 7275 or lower. In theory Wave 2 can retrace 100% of Wave 1 (3150) and still be in a position to rally.

5. The next nearest resistance level is the 9700 to 10250 zone (once 8500 is cleared). This area continues to be our target profit taking zone. Besides being a proportional inflection point (.618 of 11K high to 7700 low), it also overlaps the 10K psychological level which can also have an effect. We are interested in proportional targets NOT unrealistic or improbable targets relative to the time horizon of our SWING TRADE strategy.

Market timing is NOT about making "predictions". The financial entertainment outlets and online communities love to "predict" things. The word implies an absolute outcome and NO financial market behaves this way. It is ALL ABOUT "IF THIS, THEN THAT". Evaluating price action, gauging probabilities and risk, and then ANTICIPATING a RANGE of scenarios to take action upon IF they appear.

WAITING is a key aspect of successful market timing. In this day and age, NO ONE likes to wait. Taking action or making things happen may work at your 9 to 5 job, but it will have an adverse effect in a highly random and uncertain environment like a financial market.

We have been in a swing trade long for two weeks which triggered at 8425, and today has met our criteria for the same trade AGAIN. We made no adjustments and sat through the adverse price action that had everyone selling into the high 7Ks. NO ACTION on our part has lead to no account erosion and no string of losing trades like so many had to face in recent weeks.

WAITING is part of the defensive mindset that is built into our swing and position trade strategies. It is the most definitive element behind our consistently profitable track record. Like I have written many times, WAITING is a very EASY concept for anyone to understand, but by far the MOST DIFFICULT to practice.

Which sheds light on a very valuable lesson that most new investors and traders completely miss: it does NOT matter how well you can read a chart or financial statement, what matters is how well you are in CONTROL of your emotional state. Greed and fear (emotions) drive short term price action, do you capitalize (anticipate) or succumb (react)? Your answer will correlate to your performance.