Bitcoin: 8500 Support In Play, Higher Low Now In Progress?

Bitcoin showing some tough price action after the short squeeze we had a couple of weeks earlier. The minor consolidation above the 9K level could have been argued as a sign of strength (higher low) but that gave way to more selling which brings us to where we are now. With lack of follow through so common in this environment, is it within reason to anticipate a bullish reversal here or a continuation to lower levels?

1. Yesterday's close has produced an inside bar which we view as a continuation pattern (in this case potential sell signal), BUT the high was taken out instead which negates the previous bearish momentum (surprise, surprise). IF the current candle closes strong, it will establish a higher low formation which is BULLISH.

2. There is an overlapping support area of 8500 (old resistance/new support), with the 8479 to 7974 zone. In terms of reward/risk this would be an ideal area for a swing trade long setup.

3. If price reverses in the mid 8Ks, we would consider the formation a broader higher low and anticipate an attempt to take out the 10,300 high. UNTIL that high is compromised, WE consider Bitcoin to be contained by the price action of the broader Wave 2. And this Wave 2 has proven to be a CORRECTIVE CONSOLIDATION (aka lacking a trend).

4. Range bound markets tend to be full of random price action, lack of follow through and false break outs. Until PROGRESS is made one way or the other, we will continue to keep our position sizes smaller to compensate for the elevated risk. A major level MUST be taken out in order to be considered progress (7290 or 10300) on THIS TIME FRAME.

5. Based on a recent broad Elliott Wave analysis, the dramatic short squeeze may be the initial leg of a broader Wave 3 (will not be confirmed until break of 10,300). For this reason, selling into any pull backs or extreme lows continues to be a HIGH RISK activity (especially for larger time frame strategies).

Randomness runs HIGH in this situation. In a matter of minutes, price action can go from looking like a sell signal to a continuation of the short squeeze we saw weeks earlier. The biggest mistake to avoid here is to become opinionated by the signals generated from very short time frame strategies.

The close of the current candle will say a lot about where price is likely to go next. That is why it is too early to get caught up in it one way or the other. If it closes weak, there will be a bearish pin bar, if it closes strong, it will establish a higher low. If we are going to take a new swing trade long, price needs to produce a clear reason and offer a precise reference point to measure risk. Our strategy is flexible but requires some particular conditions to be met before justifying risk.

This is NOT about being right or wrong, it is not about chasing profits, it is all about carefully managing risk while at the same time being FLEXIBLE. Non trending environments call for the ability to admit you are wrong quickly, cutting the loss and moving on to the next signal. This can easily lead to account churning (small time frame strategies) and is why we choose to pursue signals (long only) on the larger time frames. Eventually a signal will align with the overall probability of the location and that is the best we can expect. Stacking probabilities is the key.