Well, support at $340 held and - after a bit of a scrap - resistance at $365 has given too. So while it's been a bit of a grind Asia - at least - is sufficiently bullish to drive Bitcoin back up towards last week's peak. And as we home in on the European trading day, the market is setting itself up for a classic test.
Let's have a look at the chart:
We've stayed down on the 1hour timescale today so you can get a better sense of price action. And as you can see, we are getting close to that top. Now, I'd like to draw your attention to the lightly shaded red rectangle spanning last week's peak.
When a market sets up for a run at major resistance (or support), one of two things are going to happen; its either going to blow through or reject - so far so obvious, right?
But let's take a moment to consider why this is so from the perspective of market psychology.
Anywhere North of $380 we know that the market is going to start encountering sell orders from those nervous holders of bitcoin who see the test ahead and don't think that the market has sufficient oompf to burst through at the first ask. They want to cash out at the best price they think is possible, without being too greedy. And should you need to realise your profit in the near term this makes a lot of sense.
A whole other group of traders will be anticipating the presence of this counter-attack and will either accelerate their buying into it or prepare an ambush of their own, back down at $360 or lower still at $340.
While we don't know whether this ambush will succeed we can say that to occur, the market will likely have made a 'lower-high'.
Finally, there will be those who feel that while a run through the top is 'on', the effort of getting through will exhaust buying momentum to the extent that it won't be sustainable. They will be placing their sell orders beyond the peak, hoping that the market's last gasp drives price through their triggers, initiating short trades at the very top of the market. The point here is that the market could burst through to a 'higher high, only to fall back down like a stone.
Hoping that I haven't sent you all to sleep here, my point is that because we don't know what will happen, we have at this stage to assign each of these scenarios an equal probability. This is why I have drawn resistance on this chart as a zone and, more importantly, it is why trying to trade breakouts is such a mugs game - in my view.
To reiterate a golden trading rule the only plays that make-out over time are the booking of profit on long trades at resistance and short trades at support.
Having said all this, while initiating buy trades at current levels makes no sense, holding onto what bitcoin you already hold and can afford not to liquidate makes absolute sense. While price may well shuttle up and down a bit as we bounce between support and resistance, the overarching condition is hugely bullish and it would take a threat on my family's life to prize my bitcoin out of its wallet... or a successful hack, I guess.
It is for this reason that we remain firmly in buy mode - if a bargain materializes. And the levels we are watching on this front are $320 and $265.
And that's your lot for today, folks.
Toodle pip,
Rob @BitScan.
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