Bitcoin: Buy Signal In The Bullish Reversal Zone.

Bitcoin break out is NOW in play. We shared a LONG swing trade idea with our followers yesterday which triggered at 7250. Although the stop is wide, the magnitude of the reversal structure that is confirmed is likely to lead to a test of the 8500 area resistance at LEAST. The goal of this article is to highlight the key technical points that will guide our decisions as the trade unfolds.

1. The large outside bar off of the 6450 area low followed by a series of narrow inside bars is a CLEAR sign of strength. While follow through may continue to be slow at times, short squeeze (margin liquidations) momentum is likely to lead price beyond 8K, and reasonably into the mid 9Ks over the next week.

2. The general probability of the location (7275 to 5464 support zone) favors LONGS. And now there is a failed low formation off of the 6450 level. This confirms what we have been saying all long: this is NOT a location to sell.

3. The 7600 area presents the first minor resistance. A decisive close beyond this point will prompt us to add to our long term inventory. Averaging into an improving market is a more conservative practice compared to averaging into a weak market.

4. 6850 is the next minor support. IF Bitcoin retraces to this area, and prints a reversal pattern, it will prompt us to take another swing trade. (Swing trades are SEPARATE from inventory positions). With strength clearly returning, in theory price should not test much lower than that (IF it breaks 6850, we adjust our perspective).

5. Bitcoin has a long way to go before it confirms this, but the 6450 level may be the BOTTOM of the corrective consolidation that has contained price action for 6 months. IF 10,300 is taken out, followed by 14K, the next bullish impulse (broad Wave 3) is most likely in progress. This can take MONTHS to develop.

6. As long as price structure maintains its supports, momentum continuation patterns and new bullish reversals will offer setups that have a better chance of following through. We will be open to participating in these even if the best prices are no longer within reach.

These points are a summary of our perspective and provide a framework for our decision making process. Before you get caught up in all the hype that will follow this Bitcoin move, it really helps to understand what drives price.

Chart patterns, news, drama, fundamentals, lots of pretty lines and graphics mean nothing if you do not understand the forces that actually move Bitcoin or ANY market for that matter. The candles or bars that you see on a chart are an expression of order flow and order flow is stimulated by MANY things, but most importantly by the irrational tendencies of human behavior.

If "math and facts" governed markets, there would be no opportunities to buy undervalued or sell overvalued assets because everything would be "fairly" priced. Market behavior (even with the algos) is still an expression of human behavior. If you are just starting out in this game, focus on the psychology rather than charts, math and news. The sooner you can separate from the herd, the sooner you will be able to capitalize on their short term behaviors.