BTCUSD: 50% Correction? Good Time To Think Long.

2017年12月22日

BTCUSD update: From 19830 to 10700 in two days, basically a 50% retrace. Instead of worrying about why, my focus is evaluating where and when to buy.

The market is a harsh teacher. People who jumped in near the highs expecting this market to go to 30K are now learning about risk. All the coins are retracing 20%+ in a matter of hours. The good news is this type of retrace is normal and healthy and offers opportunity for those who are patiently waiting for a RELATIVELY lower risk area to begin trading or investing. The short term news or reasons behind this are irrelevant while TA will guide more effective timing during extreme price moves.

In terms of TA, the 14450 support (.382 of recent bullish structure) was cleared without any hesitation. This is why waiting for reversal patterns is so important when it comes to timing and managing risk for swing trades.

The 10700 low is the upper boundary of the .618 support zone that expands as low as the 8650 area. As you can see, price has bounced significantly off this area and is presenting a bullish pin bar at the moment. The question is: when do you buy?

This is where your plan comes in. You must first decide what type of trade you are comfortable taking. If you are looking to add to an investment, that is much different than timing for a swing trade.

Buying for the long term is not a bad idea nearer the lows. If you are buying while there is no structure in place, price can easily retrace into the 9 or 8K range. Building a position in small increments is more appropriate in the 10700 to 8500 area compared to much higher prices. If you are buying to invest, there is no precision. Managing risk is more of a function of position size relative to what you can afford. If price happens to go to 5K (less likely, BUT it can anything can happen), you have to be OK with that. RISK is high in these markets, and if you can't handle losing everything that you put in, then you should not invest. Embracing the potential loss is what will help you become immune to the fear during extreme moves. The same fear that pushes the less experienced out of their longs. (Do NOT do this type of investing with margin. If you do not understand why, you need to do some homework). Averaging into a market during extreme retraces is better than buying highs, BUT is NOT safe either, if you seek safety, you are in the wrong market. This is for the aggressive investor.

As far as timing short term trades (swing trading), waiting for a retest of the low offers the best reward/risk relative to the nearest targets. Compared to averaging in, this method offers defined targets and stops. For this strategy, I would wait for a double bottom or failed low near the 10950 to 8650 zone and use the low of that structure to define the risk for the trade. Waiting for the structure on a smaller time frame (4 Hour, 1 Hour) offers more stability than randomly buying any low. As far as potential targets, the 14200 level (.382 of bearish swing) and the 16350 to 17900 area (.618 zone of bearish swing) offer areas that are proportionate to the current correction and provide realistic profit targets to measure reward from.

As long as price stays below the 14200 resistance, it is more likely to retest lows rather than highs. As far as an immediate recovery that new participants have grown accustomed to, I would say the more likely scenario is for the market to go into a broader consolidation after such a retrace which can take a week or two to play out.

In summary, maybe now some people have learned why locking in some profits and reducing risk on highs is so important. A 50% cut in two days is extreme and offers a long term buying opportunity for aggressive investors who know how to embrace loss. Otherwise, getting back in for short term moves still requires waiting since there are no reversal structures in place yet. Your plan is what should guide your decision making, not your feelings.

Comments and question welcome.