Over the last 24 hours we have seen what happens when an accelerating rally meets a well defined wall of resistance. Let's look at it on a chart:
Basically what happened here is that the market rose swiftly on a one way order flow as the final weak bulls piled into the market. When sufficient smart money liquidates to profit at resistance, the previously annotated $1065 (on Gox), coupled with the predictable bear counter-attack, the order flow swiftly reverses and having 'climbed a stairway' the market 'falls off a cliff'.
What happens next will be interesting.
For the time being the steepest short term trend support line (faint green) is holding. This may be sufficient to reverse the order flow back to the upside. If it is resistance at $1065 will bar far weaker at the second look and we may well punch through.
If, on the other hand this steeply rising support line gives, the market will probe lower to the next steepest trend line, which is currently co-incident with horizontal support at $960.
If support here fails to reverse the order flow the market will probe lower again to retest the far side of the longer term trend channel, which is currently co-incident with the inflection point (bold red line) we identified in our last post.
And this could all happen very swiftly when Europe and then the US comes on line.
For active traders, the point this price action serves to illustrate is the need to book profits when they present, especially when faced with a significant price point after a nice run up in your favor.
The broader point is to understand what sort of trader you are. If 'active' then this is how you must trade; get in and out early. If your time horizon is longer you can afford to be more circumspect. If an investor then you need to develop the conviction not to be 'shaken out' by these inevitable speed bumps.
But then I am sure that I am preaching to the converted...
Whatever, the next 24 hours could prove significant. See you on the other side...
Rob @ BitScan