Bitcoin Buy Signal? Price Action Favors Fake Out.

23 בפבר׳ 2020

#Bitcoin establishes another higher low off of the 9250 minor support, and has even offered a new buy signal relative to our LONG only swing trade strategy. This time, we are stepping aside because the probability and reward/risk are not attractive. It may be hard to understand for newer investors and traders, but not all signals are created equal. Context plays a big part in shaping the variable probability that is not obvious on the surface of a typical setup. In this video I further explain the elements that we consider in order to filter out such a setup, even though there is a small chance price breaks higher. The following are key points contained in the video so that you do not have to watch the whole thing.

1. Probability of the location: 9564 to 10168 is a proven resistance zone relative to the 14K peak established in June. Order flow has clearly defined a corrective structure which is in line with the probability. This is an area that is more attractive to sell or lock in profits, NOT put on more risk. Even in the face of the broader bullish momentum.

2. Reward/Risk Not favorable: Before all of the chart experts start sharing there 4 hour charts with arrows to 12K or 3K, this element is SPECIFIC to the rules of OUR strategy. Even if we took an aggressive buy signal here, reasonable targets are around 10,400 and 10,850, and the chance of reaching them at the moment appears low. Meanwhile we would have to risk at LEAST 750 points. Although we have taken trades with a minimum of 1:1 reward/risk, probability weighs against taking this particular setup.

3. What does probability favor? A fake out, a lower high, or a more complex corrective structure. Price can test the 8950 level while still maintaining its broader bullish momentum. A more attractive trade idea would be a reversal pattern that develops around the 9250 or 8950 areas.

For our decision making process, probability and risk come first, NOT "how much" we can make. This defensive philosophy has minimized negative trades when the environment was not as favorable, and has put us in a position to capitalize on the better quality setups that have appeared recently. For the reactive participant, this process that we follow is very unpopular because it goes against the grain of the herd (just look at what is popular in this community). We follow rules, not news, not opinions, or reactive price movements and either the market will conform, or it won't. Yes, we will miss moves, but we don't lose money missing moves. All we have to do is wait for the next one. Rules are what produce consistent returns in a highly random environment and until you can put that idea into practice, your results will be random as well.