BTC Contraction/Expansion

COINBASE:BTCUSD   Bitcoin / U.S. Dollar
Happy Superbowl Monday. The New England Patriots long-term success is truly a remarkable feat, whereas even if you don’t like them, you must respect them! Unfortunately, the game yesterday was a bit of a snooze fest, similar to what is going on in BTC . The volumes over the last 72 hours have been some of the lowest we have seen in months. The downward trend of volume in the chart shows two things; slowing interesting in the trading of BTC , as well as confirms BTC is in a CONTRACTION mode.

In trading, the market constantly cycles between range CONTRACTIONS, and range EXPANSIONS. Short-term trading within a range can be difficult, but being able to identify a trend day (break-out) can prove to be a very profitable strategy.

The last 1-day candle in the yellow bubble above in the chart is the smallest DAILY range we have seen in some time now. Combine that with the low volumes, and we think we are seeing a set-up for a ‘break-out day’. This would most likely occur if stops can get taken out. We are not sure on the direction, so there are two strategies that can be used here:

The first is to buy straddles. With BTC option vol being the cheapest it’s been since the mid-December lows, you may be able to get some good buys in at these current levels.

The second strategy that you could deploy would to place a BUY-STOP order just above the tip of the last 1-day candle, and SELL-STOP order just below bottom tip of the last 1-day candle. The idea here is that when the move is made, you can have a good entry point for the beginning of this new ‘trend’.

Let’s get technical and go one step further on this second trade. When you get filled on your initial stop-order (let’s say you bought on a break out rally) you would then quickly place a SELL-STOP order at the SAME PRICE as the purchase, but for GREATER SIZE than the original trade. This concept is that if the break out FAILS, then a reversal of greater momentum would be initiated. This 2nd trade would not only cause you to break-even on the initial order, but actually reverse your position and give you the ability to capture that false break-out reversal.

If you catch the break-out correctly on that first trade, then you can use a trailing stop to help lock in profits without closing out of the winner too early. Look for support and resistance levels to be price targets to take off this winning trade. Then sit and watch patiently to observe this new cycle. Either BTC will continue as a range EXPANDS, or BTC will form new buy and sell walls in which you would trade the range as BTC CONTRACTS.