jacobcanfield

Exercise Extreme Caution For Bitcoin With This Pattern Forming!

BITMEX:XBTUSD   Bitcoin / US Dollar Perpetual Inverse Swap Contract
Good evening traders!

In this post, I'm going to cover the 'Rectangle Formation' and how it applies to Bitcoin and my trading plan for how I am going to be trading it.\

Bitcoin recently broke down from our descending triangle as we highlighted as a possibility in our last bitcoin analysis as we had several futures gaps we wanted to see filled.

One thing about markets is that they tend to TREND in the direction that they impulsed from. This is especially true when we lose key support levels like the 200 day moving average as seen here.

Bitcoin broke down with much more velocity and strength than most people were anticipating, but now we are in a sideways/choppy consolidation.

Most people see this and don't know what to make of it, but it is actually a very classic technical pattern called a rectangle formation. These usually jump right out from the chart as they have very clearly defined support and resistance levels.

The Rectangle is a clearly defined level of support and resistance that acts as a 'pause' or 'congestion' in the middle of a trend.

It is mostly seen as a continuation patterns by classic technical analysts and traders, but can be a reversal depending on volume flow and a breakout from the range with the top of resistance flipping as support.

If we do break below our rectangle support, a measured move would take us to about the $6400 level, which was one of the biggest support levels of 2018 with a lot of price action around that zone.

It was also the exact point where price dipped back in May of this year.

The top of our rectangle is $8600 and the bottom of our rectangle is $7800.

These will be our clear invalidation levels for both our bearish case and our bullish case.

On a smaller time frame (4 hour), Bitcoin does look like it has a bullish pattern for the moment with a falling wedge structure, but it has not made a higher high in over a week, so it's still important to exercise caution.


It is also important to get time your entries properly.

What I mean by that is, you don't want to short support ($7800) and you don't want to long resistance ($8600).

If you want to play it level by level, try and get your longs on support and shorts at resistance. This will lower your risk considerably as you know exactly where your invalidation level is.

Now, another strategy is to WAIT for the trend to develop and show itself.

This means waiting for the price to break out and HOLD the $8600 level as support to enter a long position.

Also the opposite, you want to wait for price to break and hold the $7800 level to take a mid term short position.

Just by knowing this classic technical pattern, it can give you a much better idea of how to trade Bitcoin for the near term.

Once you have your trade thesis, the next part is putting it into action on the exchange by setting alerts/alarms and waiting for the right set-ups.

Let me know in the comments YOUR thoughts on Bitcoin and if you enjoy my analysis and want to support my work, like the chart below.

Thanks for reading.
Comment: Because rectangle formations can last anywhere from 30-90 days, these levels can be very helpful to trade in the mean time until a new trend is established.

I published my analysis before I had finished with my examples of trades. Below are a few ways you could trade this range.

1.) A break down/retest of the lower end of the rectangle.

2.) A breakout/retest of the top side of the rectangle.

3.) Longing the bottom of the rectangle with a 'demand zone' raid where it creates a 'swing fail pattern' on the 4 hour chart and buyers defend the level.

4.) Shorting the top of the rectangle with a 'supply zone' raid where it creates a 'swing fail pattern' and a wick into the zone on the 4 hour chart.

5.) Short term level by level scalp trades targeting .5-1% moves.
Comment: On the hourly chart, Bitcoin broke out of the falling wedge I had highlighted in my analysis and gave us a nice retest around $7900.

The move this morning pushed to exactly the 50% fibonacci level as well as the monthly open level.

$8,300 must be broken and flipped as an S/R level for continuation.

REMEMBER: Do not short supports and do not long resistances as I warned in my analysis. LONG supports and SHORT resistances unless we see a breakout as our invalidation levels are VERY clear. :)

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Comments

Extreme Caution trading - not sure? Better Be Holding.
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TA for Pro:
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SignalSwiss SignalSwiss
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Well Done
+1 Reply
Good analysis as always! Keep up Jacob!
This is my recent analysis where I am talking about zones of interests and psycological barriers. I used candlesticks with the most buying/selling pressure for it.
Please tell what you think
+1 Reply
great job!
+1 Reply
jacobcanfield Yuriy_Bishko
@Yuriy_Bishko, Thanks. Love your analysis also
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Thanks for sharing.

Here is my chart (short-term) analysis:
+1 Reply
jacobcanfield alanmasters
@alanmasters, Thanks for the perspective Alan.
Reply
BTC movement now depends on retention / breakout levels.
+2 Reply
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