Bitcoin: Price Break To 38K?

2022년 1월 16일

Bitcoin retraces off of the 39.5K low (bullish pin bar) over the previous week, but is unable to clear the 45K resistance. What does this mean for the coming week? I am going to share 3 scenarios to watch for and provide some insight into which one has the stronger likelihood to play out.

In my previous article, I explained the rationale behind accumulating more inventory (dollar cost averaging) into such levels, but again that is something that has to be done very carefully. I also mentioned that swing trades on the long side would be considered very aggressive. This article is going to be more focused on the swing trade perspective.

Scenario 1: Price breaks below 39.5K. What? I thought Bitcoin was bullish at these levels? Most traders/investors do not realize that there are multiple trends unfolding simultaneously and often they can conflict with each other. For example, at the moment the broader trend (going back 6+ months) is bullish, while the short term trend (which I like to refer to as 'momentum') is bearish. In a bearish structure, resistance levels are respected and as long as Bitcoin continues to respect the 45K level (see blue rectangle on chart), price is MORE likely to test the 39.5K low and break lower. For this REASON, I consider swing trade longs aggressive because they are going against the momentum. Should you avoid these trades? The answer is going to be a function of your risk tolerance and personality. Either way, when taking setups in a counter trend situation, it is a good idea to have much lower expectations, particularly when it comes to anticipating profit targets. I don't short Bitcoin, but at this time, that would be what the structure favors.

THIS SCENARIO CAN CHANGE QUICKLY: If Bitcoin manages to break the 45K resistance over the coming week, that would confirm a change in the structure and point to a greater possibility of a mini consolidation or higher lows developing. A significant catalyst would have to come along because as the global markets enter a rising interest rate environment, I am anticipating consolidating markets rather than the relentless (inflation) bull that we have seen over the previous year. By the way everyone is a GENIUS in a bull market. So Bitcoin 100K anytime soon? I would not bet on that. If you don't understand the effects of interest rates, you should take the time and research it.

Scenario 2: The higher low. Bitcoin is currently gyrating between 39.5 and 45K. It is possible that price can linger here and produce a new buy signal which would eventually take out the 45K resistance (higher lows usually lead to higher highs). The thing is, this is not something that should be taken without any confirmation. It needs to begin with a buy signal, and right now price is trying to establish a sell signal. The current location would be an ideal area for such a formation and is something I am watching for.

Scenario 3: The double bottom at 39.5K. If price sells off from the 45K resistance area, tests 39.5K again and does NOT break, it could establish a double bottom or failed low situation. The 38 to 40K area is a major support zone that is in line with the broader trend. The key in this situation is to NOT lose sight of this. Many bears will come out and short the bottom of the move (because they can't see beyond 1H charts), which can turn into another buying opportunity if a reversal pattern happens to appear. These type of buy signals have a high probability thanks to all the bears who get squeezed out. Confirmation is key because buying into the level as a reaction or placing a limit order there will be subject to the random nature of such a level (the level is favored to break). The trade idea would be aggressive because of the counter trend nature of the structure.

If you are looking at Bitcoin with the idea to trade short term movements, you should be focused on LEVELS and relative STRUCTURES and be prepared for the potential price action that can unfold in these locations in advance. If instead you are reacting to things you SEE and READ, you might as well throw your money out the window because your outcomes will be random. Not only must you have a mindset that is aligned with the market, you MUST have a CLEAR set of rules to minimize the emotional factors that often lead to costly errors. If you come into this game with the intention and expectation of winning, you will not win. Instead you should be focused on PROTECTING capital and thinking in terms of RISK first. Reward is a result of a strong defense, NOT "maximizing profits". Stop buying into the dreams and lifestyle "hooks" that most "gurus" in this arena use to lure customers, or believe that your brokers or exchanges are offering you "helpful tools" for your benefit. The industry profits from FEEs, not your performance.

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