Market Video Report: Bitcoin
Duration 12:41 mins.
Summary & Transcript
This report posits that Bitcoin is transitioning from a bear channel into a long-term trading range. After a second leg down, a recovery toward the equilibrium zone (around $90,000) is probable this year.
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. We are going to start by analyzing the weekly chart, but before we do, let me tell you that after explaining the broader context, I will deliver some specific insights on trade structure that I am sure you will appreciate.
Let’s begin by looking at the weekly chart. Context is everything in price action, and 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 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 have inertia, and they 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 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 a second leg down there. Sometimes, these second legs become complex.
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. 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 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 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. What was that setup? It was a failed “ii” setup. Their main target is a 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.
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 bears confirm control before placing the trade. During our last Bitcoin Report, I explained more in-depth why gaps work, so check it out if you are interested in more of the underlying mechanics.
Now, we have been trading sideways for 6 weeks, which makes it clear that the bears are still selling here. I always suppose that strong bulls buy low and strong bears sell high. To me, I think that bulls are buying since we are low in the major trading range, but I also know that bears are selling here, if not, the price would have just reversed up strongly. So, in this case, if I were a bull, I would wait to buy around the green box. That gap between this year’s lower low and the higher low on the right side indicates a lack of bears willing to sell. If we go back down there, I think bulls can structure a trade with a positive trader’s equation. Let’s say they buy at this higher low here and put their stop at the August 2024 low. Then, up to the middle of the major trading range, they have a 2-to-1 reward-to-risk trade, and I think they have at least a 40 percent probability of success. If the mentioned breakout point gap that is now resistance holds, the trader would be able to get out of the trade more likely than not without a loss. So, buying here makes mathematical sense.
What about selling the current low 2 setup? Here is a low 1, and there is a low 2. Well, if I am a bear, I would prefer to sell a bit higher. Even if it is true that bears are selling here, where do you put your stop loss? Right there, so it is far away. Your target is well below the 2024 trading range, and you know it is hard for that area to be penetrated easily. I have already said many times that in previous areas where the market was in a trading range, the price does not usually make fast moves. It is more expected to be a limit order environment, and that is certainly not what bears selling this low 2 want to see. Instead, I think that the middle third areas are great targets and the market tends to gravitate there. So, if for example you sell at the upper breakout point, and place your protective stop loss above the major lower high, you have about a 1-to-1 target from down to the middle of the 2024 trading range and this year’s low. That is an interesting and realistic trade, and I believe there is a 60 percent chance of that scenario playing out. I repeat, the scenario is the following: the price tests the breakout point around $80,000, and then does another leg down testing the 2024 range’s middle third.
Before jumping into the daily chart, I want to recommend that you learn how to read the market and apply this methodology in a fully independent way. You can find a link in the description of this video to buy the Brooks Trading Course. For less than $500, it is one of the absolute best resources on the internet to learn how to trade. If for any reason you do not like the course, there is a 30-day money-back guarantee, so there is no excuse on your end. If you buy the course through the link in the description, you will also directly support my contribution to the Brooks Trading Course website.
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, the price action 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. 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 simply not selling at all. Therefore, this zone is a serious candidate for considering it a strong support. On the upside, there are some critical gaps. These gaps are commonly known as breakaway gaps, and are technically called micro gaps.
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.
This week, the market broke above the trading range high and it reversed down. However, please watch this screenshot. This orange box you see is the 4-hour chart of Bitcoin. There, more granularly, we can see that the market did not reverse down strongly. A strong reversal down is something that is commonly very bearish, since it demonstrates there are no buyers. But when the market does sideways trading like that, it means that bulls were actively buying high. So, there are currently trapped bulls there. Whenever we identify trapped traders, we can try to structure trades against them, since their forced liquidation will drive the market. Looking to sell breakaway gaps is typically what experienced traders do.
For the bulls, I think that unless they can get back to this week’s highs and consolidate above it, it is much better to look to buy lower.
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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