This article is a copy of a trade idea released in our Traders Room, from time to time we will release premium information for free in our blog.
Trade type: Reversal
If you have been watching the news lately you might have seen that China is about to bad BitCoin (not going to happen), the news is good for one thing only when it comes to trading and that is creating rumours, rumours that move price and allow us to implement a very successful trading strategy, the "Sell the rumour buy the fact" or vice versa. This is the exact way I will be trading BitCoin right now, selling the rumour then buying the fact. But, I know this is not easy for everyone to do so in this post I will be giving you two different trade strategies that might just help you to capitalize on the moves coming to BitCoin this week.
FYI, I am not just selling BTC because of the BS coming out of the media, I am selling bitcoin because one of my favorite trading patterns can clearly be seen on BTC's daily chart, the mighty Head & Shoulders pattern!
In the image below you will see some key information, a more detailed and zoomed in image is at the end of this post.
Firstly let me explain what I have charted here, for my technical tools I have 1 30 day EMA (white) and 1 Donchian Channel set to 30, I am however only using the middle of the channel (blue).
The big yellow box is the key support area, that's right at $3,000 where my TP is located and the area where if reached, I will become bullish on BTC again.
So without further adieu let's go over the two different strategies
1. Pending order strategy
Stop loss: 4,200
If you follow the above entry and SL you should do fine but you need to know how BTC behaves... by looking at the daily chart you can clearly see that there are a lot of spikes to the downside and the upside, so you will be in danger of getting stopped out in the first 2-4 days of this trade, I think that if you are still in after 4 days you will be in very big gains because I am rather confident BTC will drop down to $3,000.
So, the first strategy is setting a pending order at 3,900, why 3,900? well because that is right under the current support levels, which are the 30 day EMA and the neckline of the H&S pattern at if that area is broken then I surely expect massive selling pressure to take place on BTC.
I do believe that the maximal profit target is $3,000, perhaps I am wrong but I do believe the MM's (Market Makers) are going to position themselves lower so they can buy more BTC's cheaper.
Here's your risk management, the smallest position on BTC is 1 bitcoin, meaning if your SL is at 4,200 and entry at 3,900 you will be risking around $190. I would not advise you take this trade unless you have at least $2,000+ on your account.
Make sure you don't risk more than 5-8% of your account on this trade, I know that this is a higher than normal risk but hey, we don't trade Bitcoin everyday plus the profit side is absolutely massive. 1300 pips massive.
2. Market execution strategy
The second approach is entering directly at market price, this can be dangerous but it will allow you to control your risks better than the first strategy so it is more suitable for smaller accounts.
What you will be looking to do is enter a trade at market price, but how? Well you will be doing the following,
Now let me explain the above points, you will only look at the daily chart because anything under that will cause you to increase your eagerness to enter a trade, you will only enter a trade if price action spikes up and begins to trade lower, allowing you to see a possible "pin bar" formation.
You will need a ton of patience, which means a lot of screen time doing absolutely nothing but waiting for price either to bounce from the neckline or break it before you take action.
If you enter the trade and price starts reversing on you get out and wait for a better entry.
I know that the second strategy seems like asking a lot, but it will reduce your risk. It will allow you to risk 50 pips instead of 200 and that means you will be able to have another chance if you are wrong.
As you can see in the screenshots, I am already in the trade.
Below is the zoomed in chart.
If you are trading BTC, I wish you all the best of luck!