BTC - Market Analysis & Risk

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar

An educational post for you here today with analysis! There is money on the sidelines waiting to get in, including mine! I am planning my entry to the market carefully as the market direction is not clear. We need to focus on making the high probability trades using technical analysis and risk management. That's how we are going to make the money and keep our losses small. The best traders are patient and wait for confirmation before getting into a trade (That’s not me YET as you can see on my last idea!). They will eye technical areas to set targets and stop losses. So let’s get into the analysis and see what we have.

We had three STRONG bullish day candles to save BTC from the support area and a fourth candle that to took us to $9200 where we entered the overbought area on the Stochastics. We retraced just past the 38.2% level so far but anything before the 61.8% level and we can still be bullish on this as this will still keep the upwards momentum going. If we can continue up from here, I would be looking at the dotted resistance line to take a little off the table. This coincides with our 127.3% target so we can expect this to be an important level. We can’t rule out that this run won’t be another bull trap so it is good to take profits when they are appear. There is still a good chance of this happening but the more resistances we can break through, the less likely it will become. Looking past the dotted resistance line, there’s the $11600 resistance formed from the double top in our previous bull trap.

Now we have our targets, we want to enter a trade that will give us a high probability of succeeding while not leaving ourselves too exposed. It is dangerous to try and catch a falling knife, so we don’t want to try and guess the bottom. Instead we can wait until a reversal pattern forms and/or we break out of a short-term resistance line (I have placed two that can be used). The more confirmation we get, the more confident we can be in the trade. Looking at a technical area of interest for a stop loss, we have the support line that forms the bottom of the reversal. A break downwards from here could signal we are going to lower levels - this is the best place to put your stop, at a technical area. If you can find a good entry and set a tight stop just below this support with a suitable R:R for your style, then you can be confident in the trade. If you cannot find an entry that gives you your desired R:R be patient. It’s ok to leave a trade, there will be other opportunities! It’s all down to whatever suits you best!

A lot of traders set stops based of dollars or percentages amounts that they can afford to lose and basing a stop on this alone is dangerous. You can repeatedly get stopped out just before the market makes the move you was anticipating because the stop you placed just happened to be at a support level . If you can only risk a certain amount but the technical stop is further away than you can afford to lose then don’t enter the trade and find a better entry. Risk management is easily overlooked when all the focus is on how much money you can make on a trade. Especially with crypto but the volatility can really hurt someone who isn’t prepared for a swift change in the market. We are still in uncertain times and we shouldn’t just enter the market and hope to get back in a bull run. Remember, a trader has to lose small as well as win big. Let’s prepare ourselves to crush it this year no matter what happens in the market!!!

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Comment: So we just dipped below the support line and bounced straight back and broke through the first resistance line! This is a great bullish confirmation as we also broke the resistance on good volume. We are also turning upwards on the Stochastics. As I missed the breakout I'd like to see a pull back before entering to minimise risk.

Let me put the risk management into action here. We still have our $9600 target as detailed before. We also have a new support line which will be important to keep this bullish movement going. We can place a stop just below here at $8300 and be confident a break of it will send us towards the 61.8% level.

If we wanted a 1:3 risk to reward ratio, we could reverse engineer our optimal entry. We can do this by finding the difference of target and stop ($9600 - $8300 = $1300) and divide it by the total number of units from our R:R (1 + 3 = 4). So the calculation is $1300 / 4 = $325. Add this to our stop loss and we get $8625.

Now we know we can enter at $8625 or below and still have our desired R:R. We can use this as a guideline when entering a trade. Remember we still need to time our entry, this just gives us a guideline to where we can afford to enter.

Comment: So we had a nice pull back into our entry zone where we could've scooped up a $8600 entry as outlined above. Now we have our sights on our target unless a drastic change of event happens.

If you didn't get in at the entry zone, we have formed a nice symmetrical triangle continuation pattern. The breakout of this offers another great entry point. Adjust your stop for your R:R though.

Comment: If you were to get in on the triangle breakout, keep in mind that we have heavy resistance at the $9100 area so we can expect a pull back here. It may be worth waiting for a pull back to get a better entry.

If we see a pull back from the heavy resistance line, we could retrace back to the 38.2 - 61.8%. Get your R:R right!!

Thank you very much
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