This is the trading environment as I described weeks earlier. Vertical markets breed bad habits and now is when the bad habits become expensive. As I wrote in my previous BTC report, buying into the now minor peak had to be done responsibly and for me that means with fractional sizing and no margin. I also wrote that I prefer to wait for the retest of the supports which is now underway across the board.
In this market, a retest of relevant support levels is IF price can make its way back into the 872 to 739 area (.618 relevant to recent structure). That would produce a broad or possibly a failed low formation and would be a good location to consider a swing trade long according to my plan.
The extreme price that I would be open to buying into is the 670 level which is the lower boundary of the reversal zone measured from the 770 low. This zone is based on a proportion of the most recent swing. IF price pulls back that far (anything can happen),I will be looking for reversal candles such as a or pattern to enter into a position trade long. I like this area the most because it represents an extreme price which is often where the herd is pushed out of longs or emotionally seduced into shorts. It is also where risk on the long side is the lowest relative to recent price structure.
Speaking of shorts, selling into a lower high is not a bad idea, because reward and risk can be clearly quantified. Overall 1160 is the level to define risk from while the nearest target is 872. The current price is not the best entry since reward/risk is around 1:1 or less, but a minor retrace higher can present an opportunity on the swing trade time frame. I do NOT short these markets because I do not use margin, and I intend to participate on the bigger picture which is . For those of you who are comfortable with this side of the market, you must not hesitate to take profits if you have the opportunity because the general environment is and shorts will most likely get squeezed fast. I mention the short side because being aware of both sides of a market is part of having perspective.
In summary, lower highs often lead to lower lows and within the context of a bigger picture, a conflicting situation like this can be confusing. This is why a well defined plan and flexibility allow for effective trading around the confusion while the reactionary herd is still looking for the uncommon and unrealistic vertical market environment. My plan, just like in the other markets, is to participate on the long side which is in line with the bigger picture. As this retrace may present a short term opportunity for some, I am waiting for the broader trend to reassert itself and I have levels to anticipate where that change will most likely take place. Either the market confirms my scenario, or I don't participate it is that simple.
Questions and comments welcome.