Nasdaq Bear: Avoid Bitcoin?

The sell setup that I pointed out a week ago has followed through (are you still waiting for 50K?). At this time, a swing trade buy signal is in play from the 21,850 level. This is the upper boundary of my anticipated support area for potential swing trade setups. Is this worth taking?

1. While I am all for long ideas, I am suspect of this single candle reversal and I am NOT willing to take any risk. There are a couple of important reasons to consider. First, Bitcoin follows the stock market. The Nasdaq at the moment is still within the midst of a bearish retrace. With no buy signal present there, it reduces the probability of this Bitcoin reversal in my opinion. I would rather be wrong and wishing I was in rather than wrong and wishing I was not in. Second, the recent bearish momentum following the sell signal (see recent bearish pin bar) is still in play.

2. A more complex reversal formation such as a mini double bottom or failed low would be more attractive particularly around the 20K level. This is my preferred scenario and can materialize over the next few days, ESPECIALLY in light of a fake out of the current buy signal (too many premature longs).

If the Nasdaq retraces further over the coming week, Bitcoin is more likely to fake out and probe into the support zone between 21,600 and 20K. I do understand how frustrating it can be to WAIT for such a scenario. It is also possible that further retrace never materializes and the next leg higher is beginning now. So what to do about this?

This is where YOU must determine what kind of risk you are willing to take. Taking the 21,850 area long poses about a 1500 to 2000 point risk at this point for a potential profit of about the same amount. In other words 1:1 reward/risk coupled with a lower probability in light of the broader market context. Taking this is like playing a low probability poker hand because it paid off previously BUT randomly.

The other consideration is work on smaller time frames to mitigate broader magnitude risk. I mentioned this in my previous article and in previous streams. Adjust your reward/risk parameters to an 8H or 4H time frame. Take quick profits and keep expectations small UNTIL price reaches levels and presents a setup on the broader rime frame. If you mix expectations and take smaller time frame risk with larger time frame expectations, you open yourself to a much higher frequency of unfavorable scenarios.

Markets are HIGHLY random particularly on smaller time frames and because of this FACT, playing a strong defense is more effective. This means WAITING for improved probabilities, and/or mitigating risk in a variety of other ways (like breaking even on previously green trades). Take the time to learn how to judge the market for YOURSELF. Charts can provide a routine way to accomplish this, BUT where they provide the most value will NOT be obvious.

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