Bitcoin update: A test of the 6600 area has resulted in price hesitation. If this candle closes in its current formation, it will establish a lower high. This can be interpreted as a bearish warning which calls for some routine inventory adjustments. Especially since this market is more likely in a neutral or range bound environment, not a trend.
The Lower High Routine
The community gets excited whenever Bitcoin moves a few hundred points one way or the other. The move from the 6200 to 6600 had many calling yet another bottom and jumping in for the "next move to 8K!". Reacting to hype along with a severe lack of perspective will have such an effect.
Evaluating the market from a larger time frame sheds a more objective light on the situation. Considering the broader structure that dates back to July reveals this market is in a large consolidation. Any single movement within this range, especially if not relative to a predetermined level is most likely routine noise, NOT the beginning of a new trend. The question is, what can you do if you are still invested?
Bitcoin Chart Update
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Defensive Cost Averaging
We carry inventory in a number of coins and instead of watching our net asset value continuously decline, we look to capitalize on the situation by using defensive cost averaging. We do this by selling a portion of our inventory with the intent to buy it back at a better price resulting in an increased coin count.
This is different from traditional cost averaging since it requires no new capital. We share the details on exactly how we employ this strategy with our Premium Members.
In order to make this kind of inventory adjustment, price needs to present a clear sell signal. It has not done so yet so we simply wait. Managing inventory is a long term strategy that requires a ton of patience, because much of the time is spent waiting and evaluating, not actually trading.
Compare our recent Bitcoin analysis here.
Technical Outlook
Based on the structure currently unfolding, there has been little to do in terms of swing trades or putting new capital to work. During slower periods in this market we keep our Expert Swing Trades members aware of possibilities in other markets like forex since there are always opportunities elsewhere.
The consolidation currently unfolding in Bitcoin appears to be a variation of a descending triangle. These often lead to broader bearish outcomes, but it is still too early to make portfolio adjustments on that premise alone.
On the short term, we anticipate a retest of the 6K low, or possibly the 5800 area. IF an extreme boundary such as the 5500 area is reached, depending on price action, we are open to making an exception in terms of putting new capital to work by purchasing more. Again these details are shared with Premium Members only.
Probability Of Location
The reason why it is too early to act on the possibility of a descending triangle variation is because the probability of the location carries more weight. Again this is something that is overlooked by most inexperienced traders because it is not obvious.
The 8171 to 4983 zone is a high probability reversal area. We have written about it many times over recent months and it is still in play. This does not mean a simple reversal will form and off to new highs it goes. It does mean that price is more likely to find a more supportive structure over time (months) which reduces the significance of broader patterns like the descending triangle.
Unfavorable Environment
Remember back in November and December, everyone was making great calls, and impressive gains no matter what pattern appeared? At that time, there was nothing structurally bearish in the charts. That was a time more appropriate for being aggressive, or enthusiastic about an initial move higher off of a support. Structure clearly presented favorable conditions.
Structure these days tells a much different story. It is more neutral and often mixed on the short term. These are NOT conditions that are favorable to aggressive trades. Adjusting your strategies and decision making more toward the defensive side is more in line with best practices. This is why we do NOT get sucked into a random movement higher when the crowd gets excited. Not all retraces are created equal.
No Fun
Emotions are at the root of the most ineffective behavior when it comes to investing or trading. In market timing, there is no happy or sad, or hope or fear. This is not a day time soap opera (although the financial media would like for you to think so).
Market timing is more of a routine process, like jogging or driving a car. Why do people jog? It is not particularly fun, and they do not need to do it. People jog because it offers benefits over the long term in the form of staying fit and maintaining better cardio health. It requires discipline and results do not occur right away. Trading and investing should be thought of in the same way.
Wins should be acknowledged but not celebrated, losses should be reflected upon but not depressed out. Decisions should be based on particular criteria or guidelines, not fear or greed. There is no "need" to be in a market, since opportunity is infinite. This is jogging for your investment account so that in the long run it maintains good health. It is a routine, not an emotional roller coaster.
Questions and comments welcome.