BTCUSD Perspective And Levels: 10K? Game Of Musical Chairs.

26 Nov 2017

BTCUSD update: Hanging on all time highs of 9400 as I write this. The spot light has switched from ETH back to BTC. Are these markets going up forever? Not in a straight line. This price action is euphoric and is a great place to lock in profit, but not to initiate new positions, even in the face of a 10k possibility. I will explain why.

It appears that the news that is driving this market is somewhat significant, like more governments adapting blockchain, etc, and that is great for the future of this technology in general. The problem is, as many newer traders do not realize, this rate of change is abnormal and unsustainable. The strength is clear and cannot be ignored, but my point is: do not get used to this. Stocks like Yahoo and AOL (when AOL was just AOL) also used to go up 100 points a day, and moved like that for about a year (back in 1999), and today they make headlines if they move 1 point. (I realize BTC is not a stock, but I am just illustrating a point).

I make this point not to elicit more fear of missing out, but instead to provide a perspective to better manage expectations as this market matures and faces many changes like the upcoming futures contract, real institutional competition and regulation. The less experienced do not understand, institutional players have better information, much deeper pockets and can hire the best talent. They are smart money, and they are not entering this market to help the little guy. Be prepared for harder markets, especially on smaller time frames. One other point to keep in mind also is that a large number of U.S. investors are prevented from shorting these markets. Exchange platforms like GDAX (Coinbase) do not allow margin accounts for retail investors in the U.S. (I can't day trade this market short, even if I wanted to.) The futures market will not have such restrictions. That may help explain to some degree the imbalance in these markets as well.

As of now, there are no signs of weakness. Higher highs, especially all time highs often signal further strength. I keep reading comments about people selling all their coins and feeling bad because the market is higher. Selling the top and buying the bottom are like hitting the lottery, low probability. Thinking that you are entitled to selling the top is like thinking you should win the lottery because you bought a ticket. As short term traders the goal is to achieve consistency in a way that is reasonable in terms of the risk we are willing to take. And repeat our process over and over. Not hit home runs.

My next target on this market is the 9600 area. It comes from two 2.618 extensions that are almost overlapping between 9470 and 9575 so I will estimate it slightly higher. These extensions are measured from the 7871 and 6185 lows respectively.

This is a great move if you are in. If you are not, then that's okay too. There is no need to get emotional. Even though I have a higher target projected and no weakness in sight, does not mean it can turn instantly without warning. That is why buying highs, especially in euphoric markets like this presents such a high risk. The market can keep going, but no one knows when it will turn. It is like a game of musical chairs (google it), if you are going to play, you better be quick to sit once the music stops.

In summary, I am not buying highs. And even if I could short, I would not because I do not short strong markets. My plan forces me to wait for a sensible retrace which is elusive, but it will eventually present itself. 8825 is the closest support (.382 measured from the 7871 low). The next support after that is 7885 area which is the .382 measured from the 5400 low and a previous resistance. The best I can do is wait and see if price produces a reversal formation on a smaller time frame at one of these levels for a possible swing trade with risk that is sensible for MY plan. Otherwise I stay flat.

Comments and questions welcome.