As one trend breaks - the other holds
When it comes to Price Action, trendlines have long been used as an idea to visually see where price may have a reaction. Once a trendline is drawn, there is a very definitive separation between what is ABOVE the trendline and what is BELOW the trendline. This helps to take some guesswork out of analyzing the chart in the first place.
For a trend to be considered a trend – one needs to have all the pieces of the puzzle. These pieces are relatively simple as they should stand out on the chart as obvious areas where price changed directions.
In the case of a downtrend – we are looking for price to start with a High and then make a Low. From there we need another High but it has to be lower than the first High. Then price needs to make a Low that is Lower than the previous Low. So, the sequence sounds like this:
Now, you can draw a line from the Highs to get an idea of where price needs to break through in order to no longer be under the spell of trendline resistance. Then, we look to see when has the trend been interrupted – in other words, when does price invalidate the sequence?
Macro - Daily - Local
We can talk about trends all day long but if we did that then we would never be able to talk about the current action with Bitcoin. Understand that trends can span minutes to days to months to years. We are looking for the most recent price action on the Daily Chart. A Clear High with a Clear Low. An obvious Bounce and an Obvious point of rejection.
Also, understand that trendlines are subjective as there are many different ways to draw them.
Below we will look at three Local Daily Bitcoin Trendlines.
Above we can see a trendline that has price currently above it. This uses the most recent consecutive Highs to get a sense that the most recent price action was strong enough to NOT maintain the trajectory of the most recent trend. That is a good sign for the Bulls.
The second picture shows a more substantial trend as it uses the ATH. With this trend, the line is using the ATH and then the very first Swing-Fail. A Swing-Fail is when price pulls back after a new High gets put in and then rallies from the pullback but Fails to break the recent high. The Swing-Fail trend is one of the few trends that are NOT Subjective as you simply connect the Highs. We can see in the middle picture that Bitcoin is still respecting the resistance from the Swing-Fail trendline.
In the last picture we have another kind of trendline. This guy is called an INTERNAL TRENDLINE. For an Internal trendline, we look for an area that has importance to the price action and a trend that can be considered as flipped. This means that what was once Support is now Resistance and vice versa. So, in the last picture we can see the trendline was drawn from the High before the ATH. This trend was resistance but then it flipped to support and then it turned into resistance again. This continues to be the case as Bitcoin has struggled to make it over the trendline and stay there.
Why Do I Care?
These trends can help traders make decisions. For example, you may want to wait for a significant trend to be broken before entering a long or you may take a short position as something approaches a resistance trendline.
In the case of Bitcoin, we can see that the local trend has been broken which is a small sign that the Bulls are beating the Bears as the Bears were unable to maintain the trajectory of the more demanding trend slope. However, the Bears are still very much in control because they have stopped Bitcoin from breaking over the Swing-Fail trend. We can also see that the internal trend adds sell pressure which increases resistance in that area.
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On November 19th, we talked about MBOX. The idea was a pullback to the $6.40 zone with a potential DIP all the way down to $4.98. The first target was a really good trade to retest the ATH. That would have been a conservative $9.78 level (the daily close).
The next area would be $15.49 as this would be a potential price discovery level and an area for trader to take profits.
Yesterday MBOC closed with a 70% candle and earlier today was able to reach that $15.49 level. So, now we look for a pullback and then continuation. Unfortunately, these can got three different ways. The shallow pullback is to the actual previous ATH – $10.90.
The mid pullback is to the previous high close at $9.78.
The deeper pullback is to prior resistance before the breakout – so $8.22 to $7.40.
This is when traders ladder into or scale into a position. The next Price discovery target area is $22.92 – this would be a 135% gain from the Mid Entry.
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