Watching for the Upside Breakout...
Monday 09 June 2014
G'day! So in our last post we warned of a correction in the offing, and within a couple of hours the market plunged. But it really didn't get very far and a week down the road, price action has been constrained within an ever tightening consolidation pattern. Let's have a look at it on a chart...
So this chart is pretty self explanatory but lets step through it anyway. The first thing you note is the minor double top at the upper trend channel line. This a prelude to the correction we warned of. Since then we go sideways, with buyers coming at $650 (BitStamp).
On the one hand this consolidation pattern gives the impression that a continuation of the rally is the most likely scenario. Indeed, if the market breaks convincingly above $670 it wouldn't surprise us at all to see $700 in pretty short order. After all, markets like to carry on doing what they were doing and we have very definitely re-entered an uptrend, albeit only recently.
However, I am bound to say that a buy trade at $670 makes little sense from anything other than the perspective of momentum because we are still in the upper echelons of the trend channel, based on our buy recommendation back down at $450.
With this in mind, the best potential day-trade we can identify, is a limit buy from $650, with a very tight loss stop below $630 and a profit target at $710. This gives a 2:1 reward to risk ratio, taking you out of a losing trade at the moment it pierces horizontal support conclusively. It's still aggressive but for those itching to trade, it's logical. If you wait until $670 you're essentially tossing a coin and while it may come off on this occasion, its not a good habit to get into no matter how good it looks. You should always be looking for the bargain price, within a given context and in this case, that's down at $650.
Let us be clear that this set-up is for active traders only. For the rest of us there's nothing going on unless/until we re-test the $540 area and that's still a long way South. And the principles are the same, we're still looking for that bargain within the context of a far higher timeframe.
And that's all for now. Happy trading!
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