Bitcoin: This Formation Hints At Broader Recovery?

BTCUSD update: Recent price action has printed the beginnings of a significant change for this market. The appearance of the descending wedge followed by a sharp price spike is a sign that the underlying selling pressure that took this market below 6K is now losing its grip. This formation viewed in light of recent highs in short interest and a close proximity to a major psychological support (3K), opens the door to a more bullish environment ahead.

Pattern recognition is a key behavior when it comes to using technical analysis effectively (not relying on oscillators). This is the case because chart patterns serve as a gauge for crowd sentiment in terms of order flow. Chart patterns alone can be random at times, BUT when they develop within an isolated context, they can be invaluable when it comes to anticipating how the herd will react next.

Descending wedges are one of those uncommon patterns that signal the exhaustion of a trend. And the one on this chart (along with most of the alt coins) is of a large degree (took weeks to develop) and completed near a major support level. Now that an initial rally has materialized, our focus is to look for the development of a broader support structure over the next few weeks.

The larger degree structure that we would like to see before considering accumulating more inventory would be a higher low. Along with that, the 3600 and 4500 resistance levels would have to be decisively taken out. Until this scenario develops, we will continue to maintain a strong defense.

Often we get the question: If you think its going higher, why wait for 4500 before buying? The answer is: risk. If we had NO inventory, then we could justify some buying at such attractively low levels. Having rules to control risk is more important than "buying the bottom" and has saved us a ton of money as this market may new low after new low.

We are open to taking smaller time frame trades such as aggressive swing or even day trades to capitalize on an initial recovery. Since the exposure is much more limited, these activities fit within our defensive framework. The key to coming out ahead is tight position management and taking profits while they are available. It sounds like common sense until your greed enters the picture.

The current inside bar formation may lead to such a trade signal (break above 3600).

In summary, Bitcoin is finally showing significant signs of building a recovery. It still needs to prove itself, but at least the current formations provide a context to measure against. Remember tops and bottoms are a process and develop over time.

Can this market continue lower? Sure, anything can happen and that is why we ALWAYS maintain a flexible mindset. This is what helped us preserve our capital, especially after the 6K support break.

Amateurs struggle with being "right" while professionals adjust to probabilities. And based on the current structure, the bias is shifting from bearish to neutral. This does not guarantee a recovery, but if a recovery is going to unfold over the next few weeks, there is a greater chance that this is the beginning. You don't have to be right, you have to be flexible. Let the market provide the proof.