Yesterday, bitcoin had a massive rally pushing up to $9000. If you are day trading bitcoin, a move like we saw yesterday, is very tempting to trade, but also challenging to trade.
The optimal position is naturally to be in the market before BTC had its rally. However, based on the preceding technical setup, most daytraders were probably short.
As you can see in the image on the left, BTC/USD was forming a rising wedge pattern, which tends to result in a continuation to the downside. Because of this, it is natural to assume most active trades had positioned themselves short, or at least planning to do so.
In this case, the breakout of the wedge resulted in a strong move to the upside.
How could a loss be avoided?
In this particular case, you may have incurred a loss, had you positioned yourself short somewhere in the rising wedge.
An easy fix for this would be to wait with the actual trade execution until the wedge is broken to the downside.
Doing so would decrease your expected profit due to a lower entry price on a short position. It would, however, increase the chance of a profitable trade (everything else being equal).
While an actual break of a wedge isn’t a guarantee of a profitable trade, I think it’s safe to say the odds of continuation is increased.
How could you have gotten in on the bull run
If you were expecting the wedge to break to the downside, chances are you didn’t catch the subsequent bullrun after the wedge broke to the upside. What could you have done, to get in on the run?
- look for clues
- wait for a break
- trade what you see not what you think
Look for clues and wait for a break. It all sounds simple, but when its decision time in front of the trading terminal, things are much more difficult.
It mostly comes down to trading what you see and not what you think. When you expect a bearish move, it is difficult to change your mind and trade the opposite direction rapidly. nstead of being firm on your belief that BTC will go down based on a setup you spotted, try to be open-minded to other possible outcomes.
If you waited for a break to either side of the wedge, you would not get caught on the wrong side (taking a short position), and you would you have been able to profit from the run to $9,000 (all depending on what timeframe you base your trades on).