Risks and considerations for BTC bears. I shorted crypto into the rally big rally and while I was quite a bit early on it I managed to stop out before the main sections of the rally and short higher.
I've currently been short for several weeks with it being quite painless. All weekly bear closes. We're now threating some bigger bear breaks which would open the door to 50K and 40K, but I do also think now is a good time for bears to be very mindful of different types of bull risk.
Bear Break Setup is Simple Enough.
Firstly to give the more obvious looking basic bear break setup due attention. If the market breaks, it should be simple enough to follow. A bear break setting up should be able to maintain lower lows and lower highs so anyone running bear trades from higher can just trail stops and see if the market wants to pay them out.
We now have a large double top like formation which means if we make a bear break we'll have a pending harmonic. This would give a bull case of a sharp drop to the 50K area and then a reversal to new highs. Alternatively, the bear case would look for a dead cat in the butterfly area and then a stronger break.
I'd expect this to usually be a pretty simple move and easy to follow if and when a break is made. I know how to deal with those kind of breaks. It's more important to consider the blow off risks.
The Bearish Butterfly
The main risk for bears right now is we might be making a double bottom.
I don't find it's worth betting on double bottoms and double tops. It's a bit of a sucker bet from my point of view. Sure, you'll win trades. You'll remember those ones. But will you win enough at high enough RR to offset the cost of betting on them all the time? Not without a good filter. Since 100% of bear breaks once look like double bottoms and bull breaks like double tops.
Too many false signals for me to trade off it - but when you're betting on a reversing bull market and there's the potential for a W spike out, you should be alert to the risk of that near the double bottom. This will allow you to take protective action early (You'll usually find price moves too fast to make it easy to adjust later if it comes).
The reason you have to worry so much about this is there are a couple things that are common in reversals;
1 - Reversals often form with harmonics. We can see W shapes at tops and M shapes at bottoms
2 - In a harmonic the last leg (D) is always the strongest.
Ergo, we can safely say if there is to be a butterfly spike out - it's going to be a horrific affair for bears and it's going to be in a style that induces bull mania.
As a bear, this is a huge opportunity to plan a short at better levels and with various conditions to filter an entry - you just have to avoid shorting the low. Which can be pesky.
Can We Go Long for the D Leg?
As an overall rule, betting on D legs forming is a losing bet. A sucker bet. Like the double bottoms/tops thing. You do win them but a lot of failed signals. D legs are actually hyper high pay off so they're not so much of a losing edge - but as someone who's traded harmonics for a decade I can tell you if you always assume a D leg you'll be wrong a lot.
I can also tell you as someone who's set literally 1,000s of limit orders for harmonics that when they miss (The D leg does not form) there's often a strong counter move.
It's viable to map out an approx bullish roadmap with the harmonic and then use other things to confirm entries and pick stops - but if the double bottom fails that's a hard stop loss.
Buying into lower highs on small charts if they start to form to follow momentum can work better. The key trait of a D leg is its strong momentum that picks up as it continues.
Wave 5 Blow Off
Another risk for bears is we're in a wave 5. Setting up a bigger short, after a spike.
Wave 5 is preceded by wave 4 and wave 4 is notoriously choppy and tricky.
- "Are price moves messy and confusing?"
- "Are there are lot of whipsaws?"
-"Are all the breakout traders grumpy?"
If the answer to all of those is "Yes" then it's always worth keeping the risk of wave 4 in mind.
Being near the end of wave 4 would forecast a really strong move coming soon (Could be some sort of false breakout first. Wave 4s are really ugly action).
Bullish Breakout.
BTC would very heavily deter me from attempting big bear trades on it if it broke the 1,61 and 2.20 fibs here.
That would break all of the norms I look for in a topping move and be far more indicative of continuation.
Preferences and Biases
I'm very well positioned for a bear break if it comes. It's the way I'd make money without having to really do anything. With that said, I'd see the spike high and reversal moves as chances to make much more money overall. These would be my preference and I currently have a slight bias towards the harmonic spike.
I do not have any long positions at the moment. I've taken steps to lock in in profits and make sure I bank a net win on my attempts to short BTC in this zone. I plan to use small chart bull setups / momentum / breakouts to accumulate a long position IF we have up trending action on small charts.
I prefer to short into rallies than breaks, but if the bear break comes here I think it'll be fair simple and we'll revert to standard bear market strats.
We're in a good spot to be agnostic and plan for multiple outcomes. It's highly likely there's money to made in the next two or three big swings and all it will require is not over committing to any one idea so as to be able to take advantage of other things if they happen.
Bear break setup looks good. It all seems like an obvious break coming. But as someone who bets on highs and lows a lot, I become quite paranoid when it looks obvious.
It's rarely obvious when it really happens. It's often obvious right before it runs your stops.