Bitcoin: Not All Buy Signals Are Equal? What We Need To See.

16 Mei 2020

Bitcoin didn't sell off like many were ranting about a week ago. Instead, it found support around the 8500 area (like I wrote about) and produced a very aggressive buy signal which we mentioned but did not take around the 9000 area. So you may wonder, if we are so bullish on Bitcoin, why would we not take a new buy signal? It all has to do with the RULES that define our long only swing trade strategy. In this video, I go into further detail about how we don't chase money, and what rules kept us out of the recent buy signal.

In the case of Bitcoin, our rules begin with defining a trend relative to a SPECIFIC time frame, followed by a particular technical setup that clearly defines the reward/risk. The trend is bullish, and has been since the 6425 resistance break. So we are interested in long setups and recognize that sell signals carry much less weight in this scenario. There was a new buy signal around the break of the 9K area (inside bar which developed around 8500 support). Why did we avoid this signal? The reward/risk of the location is NOT attractive. The nearest relative resistance (9564 to 10168) is within 500 to 1000 points while our risk is about 1200 points. We have to bet that price will clear a tough resistance zone (lower probability) while facing a max loss of 1200 points if it fakes out. Sure we can get out earlier, but what if the market moves faster than we can adjust our order? It is unrealistic to think we can monitor this (along with all of the other markets we monitor) 24 hours every day. Since there is a lower chance that the buy signal will reach the profit targets that our method calls for, we AVOID the trade and WAIT for a setup that offers a much more attractive reward risk. It is THIS kind of behavior that promotes consistency, EVEN if Bitcoin happens to break out and we miss it. Know why? We don't lose money missing trades, all we have to do is wait for the next opportunity.

At this point, Bitcoin is likely to unfold in some sort consolidation pattern similar to Gold over the next week or so. IF we can get a test of the 8500 area or the 7695 key support during this period, we will be much more interested in a long setup. Why? The reward / risk will make a lot more sense.

Traders want consistency in there performance, but they are unwilling to develop the habits and routines that produce the results. It all has to do with the fact that their emotions are much more powerful than their ability to reason. The fear of missing out is a powerful motivator, which leads to chasing money and a consistent decline in your account balance. Shouldn't chasing money produce profits? After all, we are all here to make money right? Consistent performance comes from a system of rules that are developed around SOUND market principles and ideas. Following rules means you should be taking trades for the SAME reason EVERY TIME with few exceptions. From there it's all up to the market. A great lesson I learned years ago is that the more you can remove yourself from the equation, the better the results.