Bitcoin: 35K Support Likely To Break?

27. Feb. 2022

Bitcoin is respecting resistance levels while generating multiple buy signals. The probability and potential of longs is LOW. Support levels are more likely to break UNLESS they prove otherwise. How should you play this? It all depends on how much risk you are willing to take.

Over the previous week, Bitcoin has generated two buy signals based on our swing trade methodology. The first one at 38,500 stopped out (2500) within hours which eventually produced the large bullish outside pin bar. The second one is now in play BUT faces a new sell signal (the break of the 38,500) or the low of the previous candle. When a buy signal appears off of an anticipated support level, and it is followed by a sell signal, that negates the swing trade idea. This justifies an early exit, whether it is for a small loss or small profit. It's about mitigating the RISK!

Meanwhile, resistance levels like the low 40K area, are now being respected. Not only is this technically a lower high but it also confirms bearish momentum. Lower highs often lead to lower lows and it is now within reason to anticipate that the next relevant support at 35K is more likely to break.

The current setup in play qualifies as a swing trade short which is favored by the recent price structure and momentum. 3 to 4K points would be the risk, and looking for at least a 1:1 or 1.5:1 reward/risk would be within reason. I don't short this market, and I'm not going to start now. You don't have to play both sides of a market to come out ahead in the long run.

Keep in mind the RISK on the short side is the larger magnitude levels. The 30 to 35K area is a broad support that has a tendency to attract buying activity (as you can see with the large bullish pin bar). Shorting into such an area carries this sharp reversal risk and requires careful management otherwise you will get caught.

Another thing to note: Bitcoin is CLEARLY following the S&P500 and the S&P is reacting to every little news item. In this situations, the random element is going to be VERY HIGH. There is NO ROOM for logic in such an environment. Anticipate the levels and measure their risk in light of the CONTEXT of the price structure. By respecting the market, you are respecting that fact that IT KNOWS EVERYTHING. If on the other hand, you think you are going to gain some kind of special insight from people, then expect random results (hint: NOONE knows ANYTHING. Especially on public forums!).

There is no "special" magical high win rate strategy that is going to prevent losing trades and max out your winners. One of the biggest reasons that I see for people not being able to achieve any kind of consistency is because they focus on the WRONG information for the WRONG reasons. If you seek profits (typical herd mentality) you can't win. IF you FOCUS on assessing and managing RISK, then you increase your chances of a positive outcome.

There is risk on both sides of the market at all times. Factors like price structure, levels, etc. can help you weigh the risk and assign a general probability to the situation. From there only YOU can determine if that risk is worth taking. Bitcoin favors bearish momentum while probing into high risk reversal areas. Yes it is conflicted and imperfect, the question is: are you willing to accept that risk? Are you nimble enough to adjust if the market negates the signal? If you are not comfortable with making these constant adjustments, then avoid day trades and swing trades, and learn to invest.

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