ETHUSD Perspective And Levels: Trading Consolidations Like This.

2017년 11월 3일

ETHUSD Update: After pulling back to 275, price bounces back up establishing a double bottom and making it crystal clear that this market is in a range within a larger range.

In my previous ETH report I mentioned the 355 to 198 range, and within that broad range this market is now consolidating between 270 and 315. I explained how I raised my stop on my small position to 286 and got stopped out for a small loss. When markets don't cooperate. I get smaller and reduce risk, because preserving capital is more of a priority for me.

Range bound markets such as these are not obvious in the beginning and need to unfold in order to make the boundaries clear. Eventually this market will break out one way or the other, but until that happens, the range must be recognized and expected.

IF I am going to put a trade on, it will have to be at the lower boundary of the range only, until it breaks out and begins a new trend. Since I am not shorting these markets, that means reversal structures that form in the low 270s or high 260s are what I will need to see in order to take a position. The 310 area will serve as the target which can make for attractive reward/risk ratios of 3:1 at least if I am using a relatively small stop around the low 260s

Range bound markets offer plenty of opportunity for swing trades and day trades as well. IF price revisits the lower support and it holds, you have a high probability trade opportunity, even more so on the smaller time frames since your targets will be even smaller. (A day trade target would be high 270s or low 280s which can be reached in a matter of hours). The key to trading these markets is waiting for that price area and not giving in to the temptation of getting into the mid range prices.

Buying anywhere above the low 270s and you are in a 50/50 trade. That is the problem with buying in the middle, price action is very random. When the market reestablishes a short term trend, whether it is bullish or bearish, THEN I can reevaluate and determine other levels that would make sense for a long swing trade (if the trend happens to be bullish).

What about shorts? Again I do not short, BUT if you do, then the resistance to wait for is the 310 to 315 area. Even as a day trade, reward/risk makes the most sense there. If you get a confirmation to sell at 309 for example, and you set your stop at 316 with a target in the mid 290s, you are getting at least 2:1 reward/risk, and you can reach that target within a half a day.

Playing ranges is a simple strategy that works until the market breaks out, and it will break out. If you happen to be on the wrong side when it does, the stop is what saves you because whether it is a day trade or swing trade, the stop should be relatively small.

The free money that the BTC fork offers is attracting all the liquidity away from the alt coins in my opinion. Call it manipulation, or whatever you want, we must accept it and adjust. This fundamental condition will only add to the random price action that we are seeing in this market on the larger time frames.

In summary, trading within a consolidation is different from trading a trend. It's normal to assume a market is in a trend, BUT occasionally, a range becomes established and offers some attractive opportunities as long as you keep your expectations inline. Range support and resistance levels are great areas to find high probability setups, the key of course, is WAITING for a level. If it happens to breakout the one time you get involved, you just have to accept that as part of the game. The advantage to this condition is both entry and target levels are clearly defined. Whether you are going long or short, you enter on the boundaries and you exit in the middle. In contrast, entering in the middle is the lowest probability trade that can be taken at the moment. My plan is to buy the bottom of the range as long as there is some form of confirmation there.

Comments and questions welcome.