Bitcoin: 42K Too High To Buy?

2022年2月6日

Bitcoin has established the higher low off of the 36K area (wrote about this scenario in my previous article). Price is now lingering around the 40K resistance AREA (40 to 42K). Hopefully you are not caught on the short side like so many as a result of following "authorities" not qualified to offer such suggestions. In this article I am going to further explain how to adjust expectations in terms of this bullish price structure and how to recognize if it is reversing back to bearish.

Over the previous week, Bitcoin actually confirmed a new sell signal which had many calling for shorts. Was this wrong? At the time, the argument for a potential short (swing trade) was there. The probability of the short following through was the key point of risk to consider. Why? The entire range from 28K to 35K is a historical support and an attractive area for investing (accumulating inventory) NOT selling. This conflict of time frames (short term bearish vs. long term bullish) is very common and OFTEN overlooked by the "experts" and "gurus" who react to whatever is in front of them (they are no better than you, ESPECIALLY if they are showcasing complex charts and analysis). STOP following PEOPLE and learn to FOLLOW PRICE.

The typical trader reacts to the moment (which is intuitive and part of human nature, and ineffective in a random environment). The key is how you manage your EXPECTATIONS in light of specific pieces of information that only PRICE can offer, NOT NEWS, NOT the RSI, and especially not a GURU! So how to adjust expectations within the context of the current Bitcoin price structure?

The 40 to 42K area is a short term resistance area (see blue lines on chart). There is a higher likelihood that traders who bought into the Bitcoin sell off at these levels will be relieved to exit for break even. Add to that the traders who are eager to get in on the next short setup, the probability of a new sell signal developing in this area is greater. In other words this is not a time or location for new longs.

What about the recent change in structure? This is where expectations need to be adjusted, and then it is up to the market to agree or NOT. The fact that a higher low was established around the mid 30Ks, followed by a push to a higher high (42K) is a new piece of information which goes against the expectations of the short term bearish structure (lower highs, lower lows).

Since the broader context of the location (30K to 35K area) is bullish, the NEXT higher low followed by a buy signal should offer an attractive probability and reward/risk for a new swing trade long setup which can appear over the coming week (somewhere between 36 and 38K?). If instead price retests 30K (still possible) the likelihood of a double bottom is even greater in my opinion because of the buying attempt expressed as the recent higher low. This may sound confusing, but in order to appreciate it, you must be in tune with how order flow works. This is not something that an oscillator or a volume histogram will tell you. The buying attempt can be interpreted as a sign of a broader accumulation effort (because of the location).

This is the information I use to adjust expectations and determine risk. From there my rules determine what type of trade I take and how that risk is managed. I make every effort to minimize "thinking" and let the market proceed to inform me of its intent. I don't pretend to know anything except that the market is ALWAYS right and highly RANDOM.

If you are confused or having a tough time with this environment, it is perfectly normal. Everyone is a genius in a bull market. No one has any clue what is going on when uncertainty rises and the random nature of the market becomes prevalent. The problem is the information you consume coupled with your preconceived notions, intuitive logic, emotional state and particular financial situation. Listening to the market is very hard when there are so many layers of frivolous information intermingled with emotional complexity. As I constantly remind my followers, less in more. Your objective should be to make effective decisions with the LEAST amount of information possible. Like a poker player.

Thank you for considering my analysis and perspective. I hope you find it helpful.