Market Video Report: Bitcoin
Duration 11:35 mins.
Summary
Bitcoin is likely transitioning from a bear channel into a trading range. After a second bearish leg, bulls target the $80,000–$90,000 middle third. However, critical micro gaps act as strong resistance, where institutional algorithms leave limit orders, creating key shorting opportunities for the bears.
Transcript
Hi everyone, welcome back to this week’s Bitcoin price action analysis. My name is Josep Capo, and I’m a Price Action Trader and an author for the Brooks Trading Course website. Thank you for joining us as we take a look at Bitcoin on both the weekly and daily charts.
Let’s start by analyzing the weekly chart. Context is everything in trading, and currently, 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 in a very strong, long-term bull trend prior to this bear trend, the natural transition is for the bear channel to eventually weaken and become just legs within a developing trading range.
Trading ranges typically have a couple of legs testing both their upper and lower thirds as institutions probe the market for value. In this case, the current bear leg can be viewed as the second bear leg within a trading range. We had one leg down here, a pullback, and then the second leg down there. Sometimes, these second legs become complex. If there is another push down and then the price reverses, we would look back in hindsight and call this entire structure a complex second leg down.
The key takeaway is that once there is a second leg down and you suspect the market is in a trading range, your job as a price action trader is to try to find excuses to look for a buy setup. Why? Because market inertia dictates that what follows a second leg down is a couple of legs up. More importantly, there is a high probability of a test of the middle third of the trading range, which acts as a strong magnetic pull on the price. In this case, I suppose the major trading range spans from approximately $125,000 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 $90,000. So, that is exactly what I expect: the market testing the middle third of the trading range area at some point this year.
A few weeks ago, we mentioned that the bulls finally found an excuse to buy, which was a failed “ii” setup, or two consecutive inside bars. The bulls are now long above the first inside bar, which happens to be exactly where the bears had their stop losses placed after their shorts triggered below the low of the second inside bar. The protective stop loss for these trapped bulls is currently sitting at the low from two weeks ago. Last week, I thought the market would likely run the stops and take out those bulls, but so far, they are still alive and have room to succeed. Their main target is a favorable 2-to-1 reward-to-risk ratio, which coherently sits at the middle third of the bear flag above. However, I think it is not an easy trade, since the bulls first have to succeed in breaking the bear flag’s breakout point, an area that contains a micro gap. When we move to the daily chart, I will do an in-depth explanation about exactly why these breakaway gaps affect the price. Personally, I will look to short there, but since I prefer neutral to high-probability trades, I will likely wait for the market to show its hand and confirm institutional control before placing the trade.
Moving on to the daily chart, the market is currently in a trading range. This trading range evolved from a huge bear breakout of a previous, upper trading range. That initial bear move was an exhaustive climax—essentially a vacuum test of a higher timeframe target. By trading sideways for a long period, it tells us that institutions believe current prices are fair. Trading ranges eventually extend, and Bitcoin tends to extend its movements by breaking out of trading ranges. Will it break higher or lower? Professional traders do not have crystal balls, and we do not need them to thrive in our business. We simply try to assess the battlefield, and then we can generate sound trading ideas that eventually provide profitable trading opportunities.
So, on this chart, near the bottom, I see there was a very fast reversal, which I have highlighted in the green box. Here, we can interpret that either strong bulls were very eager to buy, or strong bears were not selling at all. Therefore, this establishes a zone of profound, strong support. On the upside, there are some critical gaps. These gaps are commonly known as breakaway gaps, and technically called micro gaps. Their technical basis is that institutions did not trade significantly in that zone. That lack of participation hints at several critical things. Because the initial move through the gap zone was so remarkably fast, institutions and their computer algorithms missed out on getting their full positions filled. Consequently, they leave resting limit orders at the origin of that move to catch the eventual retest. Modern trading algorithms are heavily programmed to mathematically recognize structural anomalies like gaps. When the price returns to a low-volume or gap zone, algorithms automatically deploy limit orders at those specific price levels because they offer an incredibly high risk-to-reward ratio for micro operations.
So, if you ask me what the goal of the bulls is, as we have said on the weekly chart, the target is around $90,000, which is the middle third of the upper trading range. However, since the breakout left critical gaps open, smart traders will watch for the possibility of a reversal from there. They view this gap area as major resistance and may either start building shorts there, or wait for the market to show its hand by reversing down, becoming clearly always-in short, and then try to catch a swing down. That latter tactic of waiting for confirmation is a higher probability trade, but it comes with a lesser reward-to-risk ratio. The protective stop loss would likely be placed at the high of the upper trading range, and the bear target, in that hypothetical scenario, would be the current $67,000 level, which is the middle third of the current trading range.
All of this is highly speculative, of course, since as the price rides, it constantly leaves additional footprints. But as you can see, price action is very powerful because it delivers so much critical information linked to market mechanics and microstructure that will later affect the different mentioned price levels.
And this is everything we have for you this week. If you enjoyed the video, please leave a like and subscribe to the channel for more. This channel offers lots of free information that is high quality, delivered by professional traders.
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