Bitcoin has reacted inline with the probabilities associated with the 13K fake out zone which has lead price as low as 11,169. Meanwhile our recent swing trade long reached both targets BEFORE the dramatic retrace. How did we know? No, it's not a hunch that we had, and it's not from obsessing over 3 hour charts either. Our targets were based on the premise that Bitcoin is in a corrective consolidation, a condition that we anticipated off of the 14K peak. Along with that, our GBP/USD long swing trade also triggered which has been trying to work its way higher. This trade premise began with the potential offered by the broader price location. If there is one word to summarize the factors that come together to produce these trade ideas it is: organization.
Target 2 reached for approximately 1600 pt profit.
Bitcoin reached our second target of 12,843, went higher and then reversed dramatically. We set our targets this way because we expected the profit potential to be limited. Why? After 5 Waves complete, the next broader sequence is most likely to be corrective. People read these words, they understand these words, and then go on to confuse themselves with other more ACTION oriented fluff.
CORRECTIVE sequence means the likelihood of new highs is LOW, even as price makes an attempt. This is how we use probabilities to shape our expectations, NOT FEELINGS, OPINIONS, OSCILLATORS or other random stimulants.
And we could've been wrong, but what was at risk if we were? If the low probability outcome materialized (which would reinforce bad habits and false confidence of the inexperienced), and price broke out to a new high, all we would have missed was a move. So we locked in profits a little early. What's wrong with that? Is locking in profits and reducing risk an ineffective practice? Our track record would argue otherwise.
On the other hand, what if we were right? We still lock in profits, while the market gives back the move and reverts to the lower regions of the RANGE as implied by the tendencies of a Wave 2 structure. We make our decisions in line with probabilities because over time, they play out more often than not. And in this case, the market went along with the greater possibility, NOT the outlier.
In theory, Wave 2 can retrace 100% of Wave 1 and STILL be part of a bullish impulse. Recent fundamental improvements in Bitcoin do NOT favor that possibility. So anyone sharing charts with BITCOIN 3K on them are either seeking attention, clueless, or both.
Probability does favor the mid 10Ks, while an extreme scenario would be 8500. Those are the most attractive levels, and IF the market offers such a situation we will be prepared to accumulate inventory as well as look for quality swing trades.
Wave 2's typically unfold in a series of 3 leg structures and that is very clear on the chart. Currently the mid 11Ks are also the middle of the broader range. This region is usually NOT a location that offers any advantage in terms of reward/risk. That means NO swing trades. WE WAIT.
If you can't WAIT, then you need to find a fellow action addict who will feed you action. The problem is, action is NOT positively correlated to consistent returns. You will learn how to put your capital to work effectively here, not participate in a financial circus.
Effective means taking risks when conditions are favorable based on a number of specific factors. Vertical price action may look nice, BUT it is NOT favorable, just ask your colleagues who bought at 13,500. High probability location, but will price action cooperate?
We shared a swing trade idea for the Great British Pound GBP/USD yesterday evening. The trade triggered at 1.2525 and pushed as high as 1.2570 and promptly gave it all back as Fed Chairman Powell talked the U.S. Dollar higher.
Why did we not exit at the high? Because it was NOT part of the plan. The expectations and reward/risk of the general entry location require patience for a broader move. This is NOT a day trade.
Our profit targets are chosen around price proportions, order flow history and broad support and resistance levels.
While it is prudent to give this trade a chance, we are also prepared to exit earlier. What will be the reason? IF the current candle closes as a bearish pin bar, that changes our premise. We will send out a text to close for a small loss or small gain, whatever the price offers at that moment. It is this defensive mindset that allows us to produce positive returns in the Forex and CFD space.
What does this market need to do in order to hold the position? The current candle needs to close somewhere near the 1.2550 area (or at least higher than our entry). Secondly, the next candle needs to take out the 1.2570 high of the current candle and make progress. If the next candle hesitates like the current one, we will exit for whatever we can get.
There is a very fine balance when it comes to giving a market a chance, and exiting early. It has to do with having realistic expectations and understanding the probabilities implied by recent price patterns and order flow.
The GBP/USD is still attractive in terms of overall reward/risk because an average retrace can realistically take price back into the mid 1.2600s. Navigating through the noise can be challenging, and the best way NOT to get shaken is to AVOID small time frames like 1 HR, 2 HR and 4 HR charts.