BTCUSD update: Negative talk about this market runs rampant while price has paused. Price is sitting on the 6K psychological support, and 5956 reversal zone boundary after establishing a large bullish pin bar. This combination of factors are what oscillators, moving averages and most talking heads do not see. The fact that this market is fluctuating in the broad .618 support zone, paints a picture of a more probable short term price floor.
Price Floor Is A Range
A market bottom, or price floor, is often not a single price. After the market rallies off the low, a single price can be isolated, but during the bottoming process a range of prices must be considered.
5755 is the current low while price appears to be stuck. If it rallies a higher low formation will be established which is an obvious sign of strength. If price pushes lower, but fails to break the 5669 reversal zone boundary, then that would be a not so obvious sign of strength.
Patterns And Levels
The bottoming process often unfolds in particular patterns or price formations which take time. Very inexperienced participants often joke that these patterns are no different than the ones you see in your afternoon cafe con leche. What they don’t realize, it is the combination of patterns and price levels that give these situations significance, not the patterns alone.
Keep in mind patterns are not limited to classical chart patterns like the “head and shoulders” that everyone knows. They occur in many forms including combinations and sequences that are not so obvious at first.
In this case, the pin bar is the first sign of change because of its size and location. Another piece of the puzzle is that the current low of 5755 is not that much lower than the previous 6107 low. These factors point to a higher possibility of an inverted head and shoulders, before it is obvious to the crowd. When you consider these formations in light of the broader location, the increased bullish reversal probability makes sense.
Pattern recognition is based on the concept of “history repeats itself” which is a tenet of technical analysis. Patterns do appear randomly just like anything else, but what gives them more value is where they appear.
It is still early, but the general structure that may be forming here is an inverted head and shoulders which would be a very bullish sign. It takes time, but if the market follows the general blueprint, it will offer more long opportunities. Just remember if a price floor is being formed, it will unfold in a pattern or combination of patterns, not a single candle.
Part of what keeps us long is the probability of the general location. If you missed the recent swing trade idea, you can read about it here. If price collapses, the swing trade will stop out, but we will still have our inventory that we will not add to until a more stable market appears.
Questions and comments welcome.