Trading the Bitcoin Reversal

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
We now have 2 events that tell us we are in a short term bull reversal.

1. A breakout above the resistance line that formed a swing on the hourly
2. The hourly candle closed above that line.

So from here I expect us to enter a new range zone between $9000 and $9500. Ideally we spend 12-24 hours bouncing in this zone creating support. We are targeting the yellow box between the green lines. There's some heavy resistance there, so I will take full profits in that area and reevaluate.

Because we came from $8100 without a retrace, I would expect us to make a backtest of the breakout and it wouldn't be uncommon to dive below the $9000 breakout line in this case. It is not a guarantee to backtest. So if you are conservative and wanted to see a swing, then you can buy here, buy at the breakout and/or add to positions on the backtest. Draw fib lines and stack orders.

At the same time, I'm taking partial profits from $9200 to $9500 from my average buy around $8300. Why?

Because this is a counter trend trade. Nothing says we can't get stopped here and reverse. In a bull like we had last fall, I hold for a higher target. However, as I scale out, I will look to re-add around the $9k area then move my stop to break even. 2 reasons:

1. I locked in profits and guaranteed a winning trade. For me, taking profits and celebrating a win is good for my mental game.
2. I can build a bigger position on pullback with a better average price so if we can hold and go to $10k then I get to celebrate another big win. If we break down, then I just get out with a small profit and evaluate and come up with a new plan.

At the yellow box, its a take profit and I will look to enter a short position. The market is moving fast. Don't FOMO into this run if you didn't get in. It has a good chance of a backtest but if it marches straight to $10k then it actually makes for a great short because its highly likely to at least pullback from that area. You can see the resistance.

If you went long, then good job, take a bit of profits and go have a beer tonight!


Also, I just realized we have a 9 on the hourly TD signal. We could go higher but its a good spot to take profits for a pullback in the short term. A drop to $8800 at the 50% would still be a great backtest. But if you plan to go long then $8600-$9100 is a buy zone. I'll have bigger orders at $8600-$8800 with stops below the swing low.

So far things are going as planned. The market usually doesn't do what I want but sometimes its close enough. We topped on the 9. And now perfectly backtested the breakout.

We are bouncing as I would expect. I took a long position because we may not go lower. But I'll add to my position if we do into that $8800 - $8900 area on futures.

I drew some orange lines mapping out what i'm looking for. I doubt we take that direct path but I expect something like this. Either we'll range trade between $9k and $9500 or we'll dip just below and form a small inverse head and shoulders before ascending past $9500 to go test that $10k area.
Comment: If we start trading around $8300 then its possible that this is was just an expanded flat correction and we'll be going lower. I don't think it is, but we need to have a plan for being wrong. And this $8300 is the area where I start thinking about an exit, but I want to see price action first. Stops below $8100 for now.

So far its playing out to expectations to some degree, though it went a bit higher and came down a bit lower. The hourly candle gave signs to buy if you didn't have orders in.

Because this price action was aggressive last night. I'm not using full positions. We wanted to see sharp move up, then controlled sideways consolidation to get a buy for another wave up. Instead we got big move up then major rejection then big move down. So this says to me that the risk of a lower move down is higher than I thought yesterday. The main reason I kept the small long is that hourly candle was so strong. So I have a small long and stops at $8100.

Be prepared for a triangle that breaks down or a bull flag forming that breaks down. The price action looks more corrective than one I'd like to see if we were marching to new highs.

So I will take partial profits as we move up. Also, I'm now focusing on finding a place to reverse and get short. It all depends on how price unfolds today, but a move straight to $9k says triangle and a rejection there could be a good short opportunity. Sideways movement and I stay long and look for the yellow box. Otherwise we get stopped out and look for a backtest to take small short.

This is why its hard to tell people how to trade and why its good to learn on your own. And there are lots of different opinions and people trade different time frames. Especially in short term trading. How you buy or sell really depends on how the structure is forming live.

This kind of price action is hard to trade as you have different scenarios that share a similar probability, so manage you risk here. Nothing wrong with sitting on the sidelines either and waiting for an opportunity.
Comment: It looks like we might have bottomed for today, but we could just consolidate at lows and end up making another move to new lows. The 2 likeliest possibilities:

1. ABC flat correction that is emerging where we could test the $9k area and then head back down.

2. We consolidate around $8k for 4-12 hours then move lower.

Price action now strongly favors the Bears and not a reversal. I'm a bit concerned to see a down move like this on Super Bowl Sunday. Looks like pro's were running everyone stops. But here's the damage:

1. We have close to a double bottom. That's not likely to hold as double bottoms are rarely a long term bottom. It may not fall today but my guess is we go lower in the next 48 hours.

2. We'll print a terrible candle on the daily with 3 more days of downside on TD sequential.

3. The weekly candle will look extremely bearish.

So the probability of more downside is now higher than that likelihood that we reverse. Of course, we could hit $10k, consolidate then go higher.
The sharp break tells us the the bearish scenario is now gaining a higher probability. So I'll get stopped out if we cruise lower. If it holds, I will look to exit my longs if at backtest triangle. There's some resistance around $8500-$8600. That would bail me out of the trade, but the market may not give it to me.

Because this is a counter trend trade, my position is small. I took it because of the risk vs. reward, but taking a small loss is part of trading. We could still go up of course, but this price action doesn't give me confidence that we make it to $10k,
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