Summary
Bitcoin is transitioning from a bear channel into a long-term trading range due to the inertia of the preceding bull trend. The core thesis is that after a “second leg down,” the market is likely to seek equilibrium in the middle third of its range (the $80,000–$100,000 zone)
Duration 9:48 mins. AI is voicing Josep Capo’s original script.
Transcript
Hi everyone, and welcome back to this week’s Bitcoin price action analysis. My name is Josep Capo, and I am a Trader and an author for the Brooks Trading Course website. Thank you for joining us today as we take a look at Bitcoin on both the weekly and the daily charts. Let us jump right in and start by analyzing the weekly chart.
Now, let’s begin by looking at the weekly chart. Right now, we are either in a major bear trend or a major trading range. In the medium term, the market is definitely in a bear channel. However, because the market was previously in a very strong, long-term bull trend, the natural transition is for the bear channel to eventually weaken and become just legs within a long-term trading range. Markets always have inertia, and they strongly resist changing from a strong bull trend directly into an opposite strong bear trend.
Trading ranges typically have a couple of legs testing both their upper and lower thirds as institutions constantly probe the market for value. In this specific case, the current bear leg can be viewed as the second bear leg within a developing trading range. We had one leg down here, a pullback, and then a second leg down there. Sometimes, these second legs become complex, but the key takeaway is this: once there is a second leg down and you suspect the market is in a trading range, your work as a trader is to try to find excuses to look for a buy setup. Market inertia dictates that what follows a second leg down are a couple of legs sideways to up. There is a high probability of a test of the middle third of the trading range, which always acts as a strong magnetic pull on the price as the market searches for equilibrium.
In this case, I suppose the major trading range spans from approximately $125,000 all-time high down to the $50,000 level. Right now, we are obviously trading within the lower third, and the ultimate area of balance—the middle third—would be between $80,000 and $100,000. So, that is exactly what I expect: the market testing the middle third of the trading range area at some point this year.
That being said, we formed a bear flag here, and the market is influenced by a bear trend too. If I have the idea that the price has the equilibrium sitting above, it is mathematically coherent for me to buy the low of the bear flag. The probability of this specific trade working is 40 percent. The stop loss is the bear flag’s measured move down, which, as you can see on the chart, is below 2024’s August low. The target is twice that risk, around $90,000, which acts as a magnet since it is around the middle third of the upper bear flag, which is an area of equilibrium.
Therefore, to me, this provides a good trader’s equation for buying long. You might ask, “What about shorting, isn’t there an 80 percent chance of a bull breakout failing?” But you must remember that the higher timeframe forces may push the price to equilibrium around $90,000. There is a highly plausible chance that we are in a major trading range and currently sitting in the lower third of that trading range. In trading ranges, the rule is simple: you sell high, and you buy low.
Now, back to the charts. Currently, the daily chart is in a trading range. As a price action trader, you know that there is a 100 percent chance that the trading range will break at some point. However, in theory, because a trading range represents equilibrium and two-sided trading, there are only about 50 percent chances for the bulls and the bears on any given breakout attempt.
That being said, you always have to evaluate the price action in context. If you manage higher timeframe information, like the context I just explained in the weekly analysis, you will see that the market is more likely to break on the upside than on the downside. Now, if I am a bull operating in a trading range, my fundamental strategy is that I prefer to buy low. Look at what would have happened to me if I were a weak bull here, eagerly buying high at the top of the trading range. It is true that many experienced price action traders look for a strong follow-through bar before buying a bull breakout, and here, as you can see, waiting would have acted as a pretty nice filter to keep you out of a bad trade. Look at the chart: there is a bull breakout, but it has bad follow-through. Then there is another bull breakout over there, and again, you see bad follow-through.
For the bears right now, if there is an attempt to break lower, I do not think it is a good sell. Actually, I am very interested to look for an opportunity to buy, exactly as I said in the weekly analysis. Unless the bears can build significant selling pressure below this week’s low—for example, if they create an overlap area consolidating below this week’s low—I am simply not bearish.
Now, if the price does go higher and break out to the upside, we have to look at the magnets above the market. There is a breakout point test of the prior upper trading range that formed a gap. That specific area is where I really look for a short opportunity. These kinds of gaps are often very good supports or, like in this case, strong resistances. So, whenever the price gets up there, I will look to short.
As a trader, you constantly have to operate in a gray fog of uncertainty, and this setup is conflictive with my weekly analysis, where I said my overall target is above $90,000. I am often conflicted with these kinds of decisions. What would I do in this exact situation? I do not know yet. One sensible thing may be taking partial profits on my hypothetical longs from the weekly chart. If I see a successful test of that gap—which means I see a strong reaction at the resistance level and a clear bounce down—I may decide to take full profits on my longs, or even reverse and become a net short.
But we are still far from there, and I am sure there are other options that will unfold as the price action develops. If the day comes where we reach that level, I will decide how to manage the trade, and of course, I will share my thoughts with you.
And this is all I got for you today. Thank you so much for watching the video, and I hope to read your thoughts in the comments. Moreover, you know we have a Discord channel, and if you tag me there I will happily try to answer your questions. I wish you a wonderful weekend and a good week of trading ahead!
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