ETHUSD: Retrace Can Test 575 Or Lower Before Higher High.

ETHUSD update: Price is retracing into the first trend line quickly while taking out the 643 previous candle low. The 590 area is the location of the trend line and is one level to consider for a bullish reversal, but 575 is the level that carries higher probability.

Trend lines are useful when it comes to evaluating context, even when they break. A break does not signal a trend change, but it does signal a change in momentum. The key to evaluating a trade opportunity at a predetermined level like a trend line is the price action which can be analyzed through candle stick formations. The current candle at the moment implies further weakness so until it proves otherwise, it is reasonable to expect the first trend line to break.

The more attractive level is the 575 area which is the .382 of the recent bullish swing. The best formation to see in this area is a failed low where price attempts to bounce, fails and attempts to go lower and then fakes out again with something like a bullish pin bar. Keep in mind price can go as low as 545 in this scenario and generate a bullish reversal for a swing trade long.

IF price continues to retrace and compromises these levels, the next area to consider is the 493 to 434 support zone (.618 of recent bullish swing). Again, the formations at that time will allow for a trade opportunity or not. When a signal is generated, along with an attractive reward/risk ratio, and reasonable premise based on context, we email, text and also publish the details to our tracking spreadsheet on S.C.

In summary, a pull back off of a high is normal and healthy. There is no need to get dramatic or hypersensitive which are characteristics of the herd. This price action is the reason why we always say don't buy the highs (unless there is a very well defined setup like we just had in BTC). This retrace can be the test that these markets need to prove that a bottom is truly established which can lead to a broader move higher in the long run. Know your levels and let the market prove itself at those levels, otherwise there is no reason to justify any new positions.

Questions and comments welcome.