Bitcoin - Market is Simply Ranging - Adjust to the Environment
Since the initial pullback on June 27th, we mentioned this likely completes the initial leg of a broader move higher. Broader corrections generally last for months not days and we expected Bitcoin to find a range over the next few weeks. The challenge with ranging markets is that momentum and continuation trades are not as effective as in trending ones. This results in many that making money in the leg higher, but giving it back during consolidation periods.
Ranging Market
We mentioned from the initial dip off the final blow off top, that we were likely entering a range bound market. Understanding the environment goes a long way to understanding how markets move. In short, most people lose money trading markets. Sentiment is highest when most people are screaming higher. This equates to most people entering near or at a pivot point in the market. Eventually you run out of buyers and there are only sellers left.
Not that we expect a broad pullback to 5k or anything. We don't, but we do expect the market to range over a few weeks to a month or so. Maybe it doesn't, and we just break higher. Possible, but not likely with sentiment so high. The market needs to let out some hot air and nothing better to do this than a ranging market. I love what my buddy Phil Said on the show this past week. "Don't confuse genius with a bull market".
It is very easy to look at a ranging market after the fact and say, wow I could have bought the lows and the highs. Sounds simple enough, but in reality it is tricky and risky. The risk is getting caught in a breakout and trend continuation or reversal. This requires you to adjust your position size. Understanding the environment goes hand in hand with risk management.
However we just completed the initial leg of a broader move. This attract the attention of those that are not in, were thinking about getting in, or you know the guy "locking in profits" at 4500. There is still a lot of room to run. Lets look at the technicals.
Technicals
Initially we thought it would range in the 9-11k range, but it blew right through that level. We caught some of it from 11k, but not all of it. I would rather be prepared for consolidation and miss a 10-15% move, than jump into every rally and get caught holding the bag.
If the current candle closes red and near the low of the previous candle, it is a sign of buyers exhausting. Yep need to put the Doritos back in the pantry because the ATH party is now on hold. Until we see further evidence of a trend continuation we stick with a broader consolidation. Interim support is 11,000-11,500 with a likely retest of 10,500 which may attract buyers.
Trading a reversal out of the shallow support of 10,500 is very tricky. We could see a swing higher, towards 12k and then pullback. Or it could break higher towards the upper end of the range, and based on the previous consolidations this is a possibility.
It could also fake-out and push lower into the mid 9k's. You might say I am playing every scenario, and you would be correct. This is why reducing risk and only taking higher R:R trades is important. This is a 33% trade at best, and this requires a reward to risk greater than 1.65. If the reward is not there, we pass on the trade.
This is where traders go from a hot streak to a cold one, and without proper risk management comes portfolio erosion. Lets take a look at the broader picture.
The weekly is very bullish so unless you are daytrading or scalping, trades should be aligned with the broader trend. Our current range is defined between 10,000-14,000. This is where it gets tricky. You can buy the lower end of the range and hope it reverses, but you could get caught in a break out and the market trends lower. This is why trading pivot points is risky. Needs to be more than a level we need a valid signal. The reason?
If it breaks 10k stops will be triggered and we can dip quickly to 8000-8500 area. Probably be short lived, but those that were calling for parabolic rallies with no pause, will be more scared then a snowflake in Florida. Their followers will get cold feet and blow out their positions. Selling right into the area I want to be aggressive for the next leg higher. Those that are impatient only transfer wealth to those that are. I'll be waiting!
Regardless the next leg higher is not confirmed until 14,500 is taken out. The next challenge is only a few points away around 15,750 or the 61.8% retrace of the overall bearish swing. There are likely to be sellers here. Who you might ask?
Well remember Grandma Jones and Aunt Betty that didn't come to Christmas last year because you signed them up on Coinbase during Xmas dinner in 2017? Yeah those are the potential sellers here. People that bought the bull trap at 16k in 2017 and held, may just want to get out with their money back. This will be especially true if the market screws around here for a few more weeks.
In addition those in from 4-5-6k who are looking to take some off the top and remove risk. When multiple strategies are looking at the same level a trend reversal can be quick and hard.
I don't want to sound bearish and I'm not. I am just giving a perspective of the environment and the risks. Look around you, is everyone talking about Bitcoin and bragging about their wins? This is generally an environment I want to tread cautiously I want to be aggressive when they are posting charts of $2500.
Risk Management The theme of the week:
I wrote recently on understanding the environment you are in, and how to position correctly for each environment. Most traders still do not understand that it is not about being right or wrong; it is about managing risk. This is no different than a typical business or in life itself. I know a lot of people that are great at what they do, however that does not make them good business owners or money managers.
I can take the best manager of restaurant, greatest engineer I know, or even a professional sports player, but if they are not good at managing money, they will likely go broke. The same goes for trading and investing. By the way have you ever calculated how much money you would have made by cutting out starbucks and in lieu bought Bitcoin all last year? That is poor money management.
Next week it is going to be about craperrrrr ALT Coins. Are you ready for the next bull rally? LMAO rally my A$$
Ranging Market
We mentioned from the initial dip off the final blow off top, that we were likely entering a range bound market. Understanding the environment goes a long way to understanding how markets move. In short, most people lose money trading markets. Sentiment is highest when most people are screaming higher. This equates to most people entering near or at a pivot point in the market. Eventually you run out of buyers and there are only sellers left.
Not that we expect a broad pullback to 5k or anything. We don't, but we do expect the market to range over a few weeks to a month or so. Maybe it doesn't, and we just break higher. Possible, but not likely with sentiment so high. The market needs to let out some hot air and nothing better to do this than a ranging market. I love what my buddy Phil Said on the show this past week. "Don't confuse genius with a bull market".
It is very easy to look at a ranging market after the fact and say, wow I could have bought the lows and the highs. Sounds simple enough, but in reality it is tricky and risky. The risk is getting caught in a breakout and trend continuation or reversal. This requires you to adjust your position size. Understanding the environment goes hand in hand with risk management.
However we just completed the initial leg of a broader move. This attract the attention of those that are not in, were thinking about getting in, or you know the guy "locking in profits" at 4500. There is still a lot of room to run. Lets look at the technicals.
Technicals
Initially we thought it would range in the 9-11k range, but it blew right through that level. We caught some of it from 11k, but not all of it. I would rather be prepared for consolidation and miss a 10-15% move, than jump into every rally and get caught holding the bag.
If the current candle closes red and near the low of the previous candle, it is a sign of buyers exhausting. Yep need to put the Doritos back in the pantry because the ATH party is now on hold. Until we see further evidence of a trend continuation we stick with a broader consolidation. Interim support is 11,000-11,500 with a likely retest of 10,500 which may attract buyers.
Trading a reversal out of the shallow support of 10,500 is very tricky. We could see a swing higher, towards 12k and then pullback. Or it could break higher towards the upper end of the range, and based on the previous consolidations this is a possibility.
It could also fake-out and push lower into the mid 9k's. You might say I am playing every scenario, and you would be correct. This is why reducing risk and only taking higher R:R trades is important. This is a 33% trade at best, and this requires a reward to risk greater than 1.65. If the reward is not there, we pass on the trade.
This is where traders go from a hot streak to a cold one, and without proper risk management comes portfolio erosion. Lets take a look at the broader picture.
The weekly is very bullish so unless you are daytrading or scalping, trades should be aligned with the broader trend. Our current range is defined between 10,000-14,000. This is where it gets tricky. You can buy the lower end of the range and hope it reverses, but you could get caught in a break out and the market trends lower. This is why trading pivot points is risky. Needs to be more than a level we need a valid signal. The reason?
If it breaks 10k stops will be triggered and we can dip quickly to 8000-8500 area. Probably be short lived, but those that were calling for parabolic rallies with no pause, will be more scared then a snowflake in Florida. Their followers will get cold feet and blow out their positions. Selling right into the area I want to be aggressive for the next leg higher. Those that are impatient only transfer wealth to those that are. I'll be waiting!
Regardless the next leg higher is not confirmed until 14,500 is taken out. The next challenge is only a few points away around 15,750 or the 61.8% retrace of the overall bearish swing. There are likely to be sellers here. Who you might ask?
Well remember Grandma Jones and Aunt Betty that didn't come to Christmas last year because you signed them up on Coinbase during Xmas dinner in 2017? Yeah those are the potential sellers here. People that bought the bull trap at 16k in 2017 and held, may just want to get out with their money back. This will be especially true if the market screws around here for a few more weeks.
In addition those in from 4-5-6k who are looking to take some off the top and remove risk. When multiple strategies are looking at the same level a trend reversal can be quick and hard.
I don't want to sound bearish and I'm not. I am just giving a perspective of the environment and the risks. Look around you, is everyone talking about Bitcoin and bragging about their wins? This is generally an environment I want to tread cautiously I want to be aggressive when they are posting charts of $2500.
Risk Management The theme of the week:
I wrote recently on understanding the environment you are in, and how to position correctly for each environment. Most traders still do not understand that it is not about being right or wrong; it is about managing risk. This is no different than a typical business or in life itself. I know a lot of people that are great at what they do, however that does not make them good business owners or money managers.
I can take the best manager of restaurant, greatest engineer I know, or even a professional sports player, but if they are not good at managing money, they will likely go broke. The same goes for trading and investing. By the way have you ever calculated how much money you would have made by cutting out starbucks and in lieu bought Bitcoin all last year? That is poor money management.
Next week it is going to be about craperrrrr ALT Coins. Are you ready for the next bull rally? LMAO rally my A$$
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