BTCUSD: Poised To Break Out? Scenarios To Consider.

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar
BTCUSD update: Bullish momentum is carrying price back to the previous peak. A retest of 11788 is likely and this situation offers an opportunity to lock in profit. What about buying the break out? Risk is now higher for the short term, and in this report I will explain some considerations for those who have been long, and those who are out, waiting to get back in.

If you are long, there is no reason to sell at the moment. What is important to consider is the price action that occurs at the 11788 high, and the proportionate reversal zone just above that has an upper resistance of 12429. IF this market is going to peak and retrace, this is the most likely area for the selling signs to appear. For example, the appearance of a pin bar off the high (just like the previous peak) would qualify as such a signal. This scenario would then present a double top or failed high formation.

Double tops or failed highs are signs that imply oncoming weakness, but not necessarily a trend reversal. At this point, I do not know if the market will decide to start selling, all I know is that it is an area that can attract more selling than buying. For the swing and position trade longs, locking in profit (NOT selling your whole position) is never a bad idea in areas like this. To help maximize your winner, do not place limit orders at target prices, instead wait for the market to show weakness. Once the weakness is confirmed (a bearish reversal candle) then you sell some portion of your position.

What about taking new longs? A common strategy is to enter on break outs. A push beyond 11788 is a breakout that will attract these types of buyers. The problem is the potential fake out. Even though though price is more likely to break higher since higher lows lead to higher highs, there is an increased chance of a pull back.

If you are long term bullish like me, you may wonder: Why not buy if its going higher in the long run? The answer to that question is: how much pain are you willing to take? Often when markets look their best, it is a bad time to buy. Best practices suggest buying supports in strong markets, not resistances and once this market breaks out, price will first face the reversal zone resistance, and IF it can break it with conviction, the next resistance is 13012.

As price pushes higher the chances of a retrace increase while reward/risk becomes less and less attractive. One solution to buying the breakout is using a tight stop in case of immediate failure, but this requires a ton of attention. The other problem with this technique is when it comes time to take a profit. Are you using swing trade targets? What if the market turns before it reaches the 12500 or 13K area? You are now managing a swing trade idea that carries larger short term risk, with day trade constraints. Your chances of getting confused and shaken out increase dramatically, especially if you do not have the time to watch these markets all day. It requires a lot more work to escape with a profit compared to if you bought in at a much lower price.

In summary, I like to take risk when conditions are more favorable and usually these conditions are not obvious to the market crowd. By the time the strength is obvious, that is the best time to sell. Why buy highs? They naturally carry more risk, and if you happen to get away with a profit, that high risk behavior was now reinforced by the market. I expect prices to break out and continue higher, but I am long from 10020 and have been since January, which gives me the flexibility of either locking in more profit, or just letting it ride. My plan helped me recognize the opportunities at lower levels and I took the risk. Do not let greed or fear of missing out drive your decisions, instead focus on identifying when the reward/risk is most favorable relative to your trading style.

Questions and comments welcome.
Marc Principato, CMT |Author: Analyze Any Financial Market Like The Pros Using Price Action| | Cofounder (S.C.)

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Greatly appreciate your words of wisdom, especially when it comes to trading psychology.
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Always great analysis, thanks!
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I enjoy reading your charts, the way you explain always shows a different way to look the market. Always learning from you. I'll consider your words, thanks a lot and keep with good work. :)
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Veeeeery helpful!!! Thank you Marc for your readiness to help us. Great.
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Hi - Your wave count suggets we are on wave v. My count had wave v end at your wave iii followed bt a b c (c being your wave iv). On this reading we may be aon wave 3 of a new 5 wace staring at iv (c). Is this reading of mine less likly?
@Gloshawk, nice... I have some views about this one:
1) a higher degree wave (V) formed at 20k. If this is true, we are in middle of ABC correction. Wave (A) was formed by 3 lower degree waves and ended abc at 6k. If this is true, the rising from 6k to 11.700 was a lower degree (a) from (B), 9240 was a lower degree (b) from B, and right now we are in wave (5) from lower degree (c) from (B). That places 11800 - 13100 as a possible reversal zone. A reversal from here will send BTC lower than 2k in a beautiful wave (C).
2) 20k is a lower degree 3rd wave from (V). That means the 3 lower degrees abc formed a 4th wave from (V), and from 6k to 11.700 was wave (1) from the 5th wave, 11.700 to 9.240 was wave (2) and we are inside 5th wave of a minor wave (i) from (3). A break under 9240 invalidates this scenario. and a break under 6k confirms first scenario.
3) a break under 9240 does not invalidate scenario (2), because we can have a complex wave (2) forming, and we are inside it yet. And believe in me... bitcoin bulls are very resilient. They buy every dip trusting in scenario 2, that we started wave (V) and 6k was the end of wave (IV).

Returning to the first scenario, there is a pattern calling my attention... a inversed Head and Sholders. A sholder at 9850, a head at 6k and another sholder at 9240. Neckline started at 13k, and 12.100 is a confluence of 100 daily SMA and the neckline...
@MarcPMarkets great analysis! looks like a wave down to make room for alt season
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Always enjoy a spot on analysis and wise thought out summary
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