ABANDON SHIP! *Says the blind mind* - How to trade the bottom
TL;DR - While the 28-32k resistance area was a very high probability reversal zone to form another lower range boundary for our big pappa Bitcoin (a range built between 65k and 30k), extreme market volatility has pushed prices much lower. Because of this extreme volatility and major bearish market sentiment you CAN NOT try to catch a falling knife and instead should wait for a retrace-off key resistance to enter give the wider bearish structure. Even though there is an extremely high probability this is the bottom, everyone and their grandma was saying that at 30k. Risk management and appropriate trading is the only thing that will keep you in the game for the long run despite how amazing a trading opportunity might be.
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Wow what a huge amount of panic there has been. Just half a year ago people were calling for 100k Bitcoin and now the whole world has collapsed. Risk management was the only thing that stopped players from getting liquidated and holy hell has this been a liquidation event.
I am going to keep this post short:
My previous series of analysis pointed to the fact that bitcoin was building a large range between 65k (upper range boundary) and 30k (lower range boundary). As we were on the 28-32k support and at the lower edges of the range, this was a high probability area for bitcoin to reverse and make another attempt at the all time highs. Probability of this was heavily tainted towards a bullish breakout of the range as the previous trend (before reaching 65k in early 2020), had been bullish. But sometimes in trading, even if probability is in your favour that 10/20% thing can still happen and in this case... it did.
Given this we must start afresh with our analysis and start to find a new range low. The context for this is clear and the chart above shows this - On the higher timeframes (weekly and monthly) Bitcoin broke out of its range built between 2017-2020, trended to 65k in an epic bull run and is now forming an even bigger range to digest prices. We have built an upper range boundary at 65k and we are now searching for a new lower range boundary. As mentioned above, the probability is tainted bullish as price action since Bitcoins birth has consistently trended bullish, then ranged. This is not opinion this is technical analysis fact and so with probability in our favour we look for this trend to continue.
Within this higher timeframe range (daily/weekly) we have formed a bearish trend (4H/daily) that has pushed price down from 65k area to the 17k low. Here is where we start looking for certain price action that increases the probability that this bearish trend has ended and we are instead building a bottom. The process of finding this bottom / lower range boundary is done by first neutralising all the bearish pressure / sentiment. Markets never (or very very rarely) go from one extreme thought (trending bullish or bearish) to the other. Much like within life, they cycle through phases with a neutral point in between their ebs and flow (or oscilations). In this case, we have been trending bearish and so it is very likely that we will range or at least retrace heavily at these lower levels in order to build a bottom. As you may have heard, bottoming is a process not a single event - I know it sounds bad because its human nature to find the best prices but in reality waiting for the later stages of this bottoming process offers a significantly better risk/reward as you have evidence that price will not collapse and so your money is safer. Just like at 30k when everyone was calling this "the bottom", markets can go crazy and so waiting is always the best option even if you don't get the best prices.
The chart above (and the first one in this post) shows you what the bottoming process is likely to look like. It is not a certainty and with the lower risk comes the low probability that price just keeps chugging upwards. But to create a bottom it is very often that a retrace occurs after the first bullish price action starts following the bearish trend. In this case the 28-32k resistance area is the most likely candidate for that resistance to show up and push prices down somewhat for a better entry. Don't get me wrong, bullishness can go further but at some point there will be a retrace. We get two important bits of information for waiting for this retrace (and believe me, every professional trader will be waiting for this information as well):
1: Using Fibonachi levels we can find high probability reversal areas that allow us to watch for appropriate signals (with buying happening either at the 50%/61%/78% fib levels)
2: These high probability areas tell us the strength of the bullish price action - if we only retrace 50% of the bullish move from the bottom as opposed to 78% then that shows us that buyers are buying heavily and are in control. This gives a higher probability of further bullishness. With this information we can gauge where to take profits - a weak bounce off 78% fib will mean lower profit targets and a potential break of the 20k area towards 11k, where as a strong bounce off 50% will mean no profit taking until the 50k area.
That is it. It is that simple. The complexity in trading comes with controlling your emotional bias. How many people (including massive firms like 3AC) were unable to control their emotional involvement in the market and so went too big too quickly. Unlike them, you must trade in a cold hard calculative way, ignoring greed, fear and uncertainty and instead patiently waiting for favourable opportunities to emerge where probability is in your favour. Buying now is not favourable as, even though the bottom is in, we just don't KNOW that it is and so we must wait for a more appropriate entry where we can gauge risk. If you do that 100 times over your life you will be a millionaire, but if you mess up once you can lose everything. That is the game we play.
P.
----
Wow what a huge amount of panic there has been. Just half a year ago people were calling for 100k Bitcoin and now the whole world has collapsed. Risk management was the only thing that stopped players from getting liquidated and holy hell has this been a liquidation event.
I am going to keep this post short:
My previous series of analysis pointed to the fact that bitcoin was building a large range between 65k (upper range boundary) and 30k (lower range boundary). As we were on the 28-32k support and at the lower edges of the range, this was a high probability area for bitcoin to reverse and make another attempt at the all time highs. Probability of this was heavily tainted towards a bullish breakout of the range as the previous trend (before reaching 65k in early 2020), had been bullish. But sometimes in trading, even if probability is in your favour that 10/20% thing can still happen and in this case... it did.
Given this we must start afresh with our analysis and start to find a new range low. The context for this is clear and the chart above shows this - On the higher timeframes (weekly and monthly) Bitcoin broke out of its range built between 2017-2020, trended to 65k in an epic bull run and is now forming an even bigger range to digest prices. We have built an upper range boundary at 65k and we are now searching for a new lower range boundary. As mentioned above, the probability is tainted bullish as price action since Bitcoins birth has consistently trended bullish, then ranged. This is not opinion this is technical analysis fact and so with probability in our favour we look for this trend to continue.
Within this higher timeframe range (daily/weekly) we have formed a bearish trend (4H/daily) that has pushed price down from 65k area to the 17k low. Here is where we start looking for certain price action that increases the probability that this bearish trend has ended and we are instead building a bottom. The process of finding this bottom / lower range boundary is done by first neutralising all the bearish pressure / sentiment. Markets never (or very very rarely) go from one extreme thought (trending bullish or bearish) to the other. Much like within life, they cycle through phases with a neutral point in between their ebs and flow (or oscilations). In this case, we have been trending bearish and so it is very likely that we will range or at least retrace heavily at these lower levels in order to build a bottom. As you may have heard, bottoming is a process not a single event - I know it sounds bad because its human nature to find the best prices but in reality waiting for the later stages of this bottoming process offers a significantly better risk/reward as you have evidence that price will not collapse and so your money is safer. Just like at 30k when everyone was calling this "the bottom", markets can go crazy and so waiting is always the best option even if you don't get the best prices.
The chart above (and the first one in this post) shows you what the bottoming process is likely to look like. It is not a certainty and with the lower risk comes the low probability that price just keeps chugging upwards. But to create a bottom it is very often that a retrace occurs after the first bullish price action starts following the bearish trend. In this case the 28-32k resistance area is the most likely candidate for that resistance to show up and push prices down somewhat for a better entry. Don't get me wrong, bullishness can go further but at some point there will be a retrace. We get two important bits of information for waiting for this retrace (and believe me, every professional trader will be waiting for this information as well):
1: Using Fibonachi levels we can find high probability reversal areas that allow us to watch for appropriate signals (with buying happening either at the 50%/61%/78% fib levels)
2: These high probability areas tell us the strength of the bullish price action - if we only retrace 50% of the bullish move from the bottom as opposed to 78% then that shows us that buyers are buying heavily and are in control. This gives a higher probability of further bullishness. With this information we can gauge where to take profits - a weak bounce off 78% fib will mean lower profit targets and a potential break of the 20k area towards 11k, where as a strong bounce off 50% will mean no profit taking until the 50k area.
That is it. It is that simple. The complexity in trading comes with controlling your emotional bias. How many people (including massive firms like 3AC) were unable to control their emotional involvement in the market and so went too big too quickly. Unlike them, you must trade in a cold hard calculative way, ignoring greed, fear and uncertainty and instead patiently waiting for favourable opportunities to emerge where probability is in your favour. Buying now is not favourable as, even though the bottom is in, we just don't KNOW that it is and so we must wait for a more appropriate entry where we can gauge risk. If you do that 100 times over your life you will be a millionaire, but if you mess up once you can lose everything. That is the game we play.
P.