To follow up on yesterday’s piece, I want to do a little swing trading lesson today. From what we are seeing in the chart, we think there may be an opportunity for a false break-out trap to the upside in which you can profit from a reversal to the downside. The concept here is that you would not get short unless a reversal in BTC was initiated. You wouldn’t want to get short prior to a break-out for the possible scenario that the rally is real and could take BTC to much higher levels.
A very recent example of this trade occurred back on Feb 22nd. We saw the 1-day bar rally to a new 20-day high, which was previously set by the Feb 19th red candle stick of $3,988 BTC. The following day, Feb 23rd, we saw a strong reversal to the downside that saw a low of $3,712. In the trading strategy called a “Turtle Soup Pattern” (developed by Laurence A. Connors and Linda B. Raschke) you would have put a sell stop order in at the Feb 19th high of $3,988 AFTER BTC broke to the upside on Feb 22nd. Since BTC reversed on Feb 23rd, your order would have been executed and you would have gotten short at ~$3,988. BTC price closed that day ~$3,730 giving you a solid $250 gain (~6% ROI).
From analyzing the 1-day bar chart, it appears the “Turtle Soup Pattern” could be repeated. On March 15th, we saw a new 20-day high (the reversal on Feb 23rd was 21 days old) of $4,037. For the last four 1-day bars, we have had ‘inside trading days’. As we said yesterday, “BTC’s feel at the very moment is that it wants to probe the recent highs and see how strong the resistance is sitting at the $4,200 level. Unless large buying volumes come into the market, probing is all we shall see at that resistance level. We believe it will take a serious force of buying to take those levels out to the upside.” We believe if BTC can rally through the high of March 15th, one can place a sell stop order at that level of $4,037. Since volumes have been incredible weak, the probability or a reversal would be greater than if volumes were large. Upon a reversal, your order would have been executed and you would have gotten short at ~$4,037.
Exit strategies on can vary on these types of swing trades. But to ensure locking in profits, it is wise to use trailing stops. In this instance, placing a trailing buy stop order to take you out of your short BTC position and lock in a winner would be the best route. Your risk tolerance would determine the gap between your trailing stop order and the market price of BTC. Good luck, and as always, we are here to discuss any day trading or swing/momentum strategies you may be interested in.