Will this Finely Balanced Market Endure..?
Sunday 22 June 2014
G'Day! So in our last post we warned of an impending retest of support at $540 and this is exactly what happened. Having said this we didn't see the BUY setup we were looking for as the market didn't re-test the extreme of its existing uptrend. Never mind, we may yet see that test. To explain what we mean, let's have a look at a chart or two...
What you are looking at here is the 4h chart at low zoom, and we've done this so you can see the interplay between price action within its trend channel and the key (horizontal) price points. When you zoom out like this it is easier to see why we felt so confident that a retest of $540 as support was on the cards, and why we also felt that there would be buyers here.
As you can also see, having bounced back up to the next key price point ($590 BitStamp) buyers and sellers seem, again, finely balanced. Accordingly, both volatility and volume have dwindled. However, while many traders will be quietly dossing off to sleep, experience has taught us that the market is always at its quietest before a big move, so we are watching closely. And what we see here is that the base of the rising trend channel is moving into co-incidence with that key horizontal support level of $540...
...Hmmm, so let's home in a little so you can see clearer what we mean:
Now, on the one hand, the market may well keep grinding steadily up from where we are, and in this case you can see that horizontal resistance at $650 is well within range and coincident with the mid-point of the rising channel. If the market manages to trade through resistance here, $710 and beyond are possible without violating the upper boundary of the rising channel - and remember - we want this channel to govern price action for as long as possible as it represents an orderly trend.
Still, there are no new trades for us here.
What would interest us is a drop back to retest $540, which is now coincident with the lower boundary of the rising channel - as we've indicated with that pale green circle on the second chart. Now this window won't remain open for ever as key price points will always trump technical levels in their significance, but the combination of price and a technical level extreme is always enticing and as long as this area represents the extreme of the existing up-trend, we are interested in picking up a bargain here, should the opportunity arise.
This isn't to say that a retest of this area would definitely reverse order flow back to the upside - or that the trade will ultimately be successful. Only, that if it is successful, we will have picked up a bargain within the existing context and if it isn't, we will find out quickly and minimize our losses in the process; this makes for a great risk to reward ratio and 'traders equation'.
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