BTCUSD: Short Squeeze In Progress. 6941 Test Possible?

BTCUSD update: 7240 low which was the lower boundary of the minor 8171 to 7239 support zone was established and followed by a very bullish pin bar. The current candle has taken out the high of this pin bar which is a bullish sign. What needs to happen now is the follow through. Without it, price can still retest 7239 or even 6941 before the reversal process is complete.

Like I wrote in my previous report, do not react, instead plan ahead. The current location is a very attractive area for buyers. In fact, if you were watching the order books on the some of the major exchanges while price was flirting with the low 7Ks, there was a huge discrepancy between the pending buy orders and sell orders. There were was something like 30K to buy and 8K to sell at one point while short interest was declining. This was visible as price was going lower which clearly signaled that the smart shorts were getting out while the weak longs were being scared out. No new shorts were entering the market. This was a clear sign that a short squeeze was imminent.

Buying in such a situation is tough, especially if you are managing a larger position already. Do not fear though, because if this is the beginning of the next broader bullish move, there is still plenty of opportunity to participate at an attractive reward to risk ratio.

The key to bullish continuation is how the next few candles unfold. The fact that 8300 was taken out quickly is a sign of strength, and that could have been used as an aggressive buy trigger. The problem is, price is hesitating when it should be pushing higher. This hesitation may lead to a retest of the 7401 reversal zone boundary or even 6941 with is the next reversal zone established by the 7239 low. It is also possible that the market presents a shallow higher low. All three of these scenarios offer buying opportunities IF new reversal candles or inside bars appear at these levels.

In summary, the bigger picture carries the most weight. It also allows you to plan ahead when you are able to project relevant support and resistance levels. These locations give you a reference point to anticipate, and prepare for reversal patterns and triggers, not to blindly jump in. Just like the market highs are very risky for longs, these market lows are very risky for shorts and attractive for longs, especially for position and swing trade longs since the potential move off of this area can lead to the mid 9Ks with relative ease. The question you must ask of yourself is how much can you risk? Choose an amount, and then split it up into smaller units. This allows you to distribute your risk across levels of aggressiveness. You can allocate part of your target size toward aggressive entries (break outs), while allocating other portions to more conservative entries (pin bars off of reversal zones). Remember this is not a casino, manage risk and the rewards will take care of themselves.

Comments and questions welcome.