Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. The bitcoin market is extremely risky so you should only invest money you are willing to lose.
Bitcoin Obituaries Are Premature
It seems like bitcoin's obituary is written every time it hits a new high. As bitcoin continued to crush new high after new high over the past week, we heard talk of bull market exhaustion, double tops, doji reversal candle patterns, and bearish indicator divergence.
Even the big players on wall street started weighing in with price targets. Goldman Sachs technical analyst Sheba Jafari predicted an advance to $8000 followed by a consolidation.
Our Recent Killer Swing Trade
Swing trading is not about predicting where the market will go but rather listening to what the market is telling you. In our blog post on November 5th, after a slight retracement from the new highs, we said "since this retracement was a very shallow one, don't get spooked by a deeper pullback into the zone between the 50% and 38% Fibonacci levels ($6738 - $6906), before the next leg up." Here is the chart exactly as it appeared in that post:
We also said: "Discord over the SegWit2x fork may cause a few hiccups along the way but we maintain our short-term target of $8543, with a projection of $10,000 bitcoin by year-end".
Both of those predictions turned out be astonishingly prescient. Here's our Facebook post from this morning before the cancellation of SegWit2x. It shows a perfect example of how to trade a price swing, in this case a 38.2% Fibonacci retracement, in a smoking-hot bull market.
A Little Too Confident?
A sharp bounce off a 38.2% retracement is an indication of a very confident bull market, and it's a great setup for a low-risk, high-probability entry point. When you see this type of bounce within a long-term powerful uptrend the market is screaming: "jump on board".
Cold, Rational, Technical Analysis
So when price pulled back to $6900, just barely entering our target zone below $6906, and bounced right back up, I was thinking: "WTF?" - this market is wayyyyyy too confident for the upcoming SegWit2x fork, especially with all the press reports about discord in the bitcoin community. This is a great example of how sometimes future events can be priced into the market and cold, rational, mathematical, technical analysis can be used to tease them out.
Like Brazilian Coffee
It's kind of like when it's cold in Brazil, coffee prices start rising and momentum in the market builds before the freeze. Then when it freezes, the price spikes and goes crazy. This is what happened today in the bitcoin market.
The confidence that discord within the community would prevent the hard fork was probably at least partly priced into the market as it was trading comfortably in the $7500 zone when the news broke that the SegWit2x fork was suspended for lack of consensus.
Volatility As Predicted
When the news broke that the hard fork was off, bitcoin price went on a wild ride - first up to $7900 in less than an hour then down to $7150 in the next 3 hours. When the dust settled, it was trading around $7300.
Where Is Price Headed?
The smartest swing-trading strategy in an uncertain or volatile market is to wait for a bounce off a major support level followed by a pattern of a higher low and a higher high before adding to your position. We still see major support at $6906 and $6738, with our short-term price target of $8543 still intact.