Bitcoin: 27K Then 32K? Rate Of Change Unsustainable.

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
Bitcoin: On December 20th and 24th there were two NEW long setups within the consolidation between 22K and 24K. We shared an aggressive trade idea on the 20th which became active within hours, so people who received it still had some advance notice to enter the orders. The buy stop price was 24,150. Upon entry, it retraced to the 22,600 area while our stop was strategically placed in the 22,300 area.

We gave it a chance and now you can see another spectacular result. The trade is profitable by over 2K points. Our profit target is in the high 27Ks. Since there is no sell signal, we intend to hold for the profit target. Why do I share all this? It serves as a solid example of how to swing trade: by following RULES.

How Much Higher???

The 27,500 AREA is a projection that considers the March low (largest magnitude). After that the next level is 32K. How accurate are these levels? They are NOT accurate at all, and only serve as points of REFERENCE. The key to using them effectively is by evaluating the price action around the level IF it gets there. These proportions have a relationship with human nature, and that is where the herd mentality originates.

Becoming opinionated off of such information is very problematic, since the market is HIGHLY random. 24K was also a price forecast based on the same method, but as you can see, price consolidated there only to break higher. Traders with opinions are likely to believe the market WILL reverse at such levels at the first sign of price hesitation, and may even be willing to short it. We let the market speak for itself and then adjust.

Safe To Buy NOW???

NOOOO. The rules say: location, setup, confirmation. Price is currently in a low probability location. These types of vertical moves are a sign of speculative froth and the herd mentality, you don't just buy it because "it looks so strong".

The 27,500 area is a potential RESISTANCE NOT a support and at the same time this kind of rate of change is not sustainable. Risk is too high now if you are not in it. Our goal is to capitalize on the herd by looking to take profit, not buy more.

Right now, a retrace to the high 23K area (previous resistance) is the first place we will consider a new long (followed by a setup and confirmation). IF we cannot define risk clearly, or if that risk is too high relative to the context, then there is no trade to take.

High probability swing trade opportunities are INFREQUENT. In the month of December, there have been 6, and we managed to participate in 3 of them. 1 of the 3 stopped out. Please understand, when the market looks its best, that is often the WORST time to enter. Avoid the hype and all of the "logic" and reasoning as to WHY this move is taking place. It will not enforce good habits in the long run.

For short term oriented strategies (like swing trades) all that matters is the supply and demand of order flow. Since we cannot see the balance of orders in the order book (like Coinbase can) we have to rely on other methods to get a sense of how the balance is playing out. This can be achieved through understanding and interpreting price action (in the form of candlesticks ) around particular levels while not losing sight of the broader context (trend). Focusing on this information rather than "news" will provide a much clearer perspective on what the MARKET wants to do, and how to evaluate risk relative to that intent.

Thank you for taking the time to read my article, I hope you found it helpful.

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