Bitcoin: 2 Not So Obvious Scenarios.

30. Jan. 2022

Bitcoin is poised to reject the 38 to 40K resistance area and attempt to break the 32K low over the following week. That is what the short term structure looks like, and what probability favors, BUT there is no guarantee that this will play out. There are other potential scenarios that are NOT obvious by visual inspection and need to be considered. Reacting to what you "see" is one of the most common mistakes novice traders (and/or fake gurus) often make.

The short term structure is bearish, and that does imply weakness is likely to continue BUT take a look at the bigger picture. The weekly chart has printed a bullish pin bar in an area that is very attractive for position trade longs. Just like 69K was an extremely risky area for new longs, the 30K area is extremely risky for shorts. The weekly pin bar could be the initial leg of a short term bullish move that can take price back into the low to mid 40Ks over the coming weeks.

This is where the NOT so obvious scenarios need to be considered:

A higher low can be established around the 34 to 36K area. IF such a pattern develops followed by a confirmation candle, this would turn into a high probability swing trade long setup and be a really tough spot for hopeful shorts. This is why having an open mind and being prepared is MUCH more effective than reacting to what you see in the moment, (or listening to others who are only capable of reacting to what they see). Stop listening to others and listen to price!

The double bottom or failed low between the 30 and 32K support area. This scenario will most likely be accompanied by LOTS of nonsensical and entertaining HYPE (over reacting as usual). IF price tests this support and establishes a bullish reversal candle (pin bar, etc.) that would also become a high probability LONG setup.

Be prepared for these possibilities and have a predetermined RISK management plan in ADVANCE. As far as profits go, because of the context of the environment, expecting Bitcoin to go beyond 45K is NOT within reason at the moment. Until a major resistance is taken out, it is better to expect LESS from longs. This means if your position manages to achieve greater than 1:1 or 1.5:1, that's a good time to take at least 50% of your profit off the table. This idea is from the swing trade perspective and has nothing to do with long term investing. (I wrote about investing in previous articles, linked to this one).

I'm not one advocate fundamentals, but when it comes to long term assessments, they can play an important role (I'm referring to REAL fundamentals, not infotainment like "Elon is going to tweet!"). In the U.S., the Federal Reserve has officially made it clear that the stimulus party is over. That is an important piece of information because it sets the tone for larger time horizon expectations. The rising U.S. Dollar and bond yields have been reflecting this announcement for MONTHS. Who cares right? We follow price! Well, this is something to care about because it means more of a consolidation or bearish type of environment is likely to persist until the FED changes their story (and economic gauges start offering clues).

As far as price action, this translates to: expect less from longs, DO NOT BUY HIGHS (break out traders), be more selective with short term trade signals, if investing, look for QUALITY instruments! (Alt coins are a vehicle to make developers and promoters rich, NOT YOU). Highly speculative markets like BTC, alts, penny stocks, growth stocks are NOT favored in such an environment. If you choose to ignore this, its okay as long as you maintain LOW expectations of such instruments, ESPECIALLY when they receive some kind of attention or hype (recall tons of alts were supposed to 10X or 50X in a matter of weeks??? that was two months ago).

Always consider RISK first! Maintain an open mind, let the market PROVE itself and STOP buying into the message of false hope!

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