Watch the depth of the correction. It will tell you if the buyers are still in control
The price of bitcoin on Coinbase surged above $10k and then 11K on Saturday. The price stalled at $11215.89. The pairs last meanful corrective bottom on the hourly chart below, was on Tuesday, June 18 at $8930. That’s a 25.59% increase in 4 days.
You would expect, that given the run up you would hit a point where traders take some profit. Corrections are a part of a market’s price action.
Now what? Is the high in place? Do we reverse back down?
When there is a correction, I like to measure the correction using the Fibonacci retracements. More specifically, the 38.2%, 50% and 61.8% retracements. They help to give clues as to the trend traders love of the move and the pain from those losing on the trend move.
The 38.2% is the minimum correction of a trend move. Note the word “minimum”. The sellers from above, may have some profit, but they are really not taking control from the buyers if they cannot get below the 38.2% target. They are just not winning the war. They may win the last battle but they are not winning the war. They are still feeling the pain.
The 50% is the midpoint of the trend move higher. I consider the bulls still in charge if the 50% holds. The correction goes to the edge but does not cross it. Sellers are feeling better but they are not over the hump. Buyers are looking for a quick bounce from here.
The 38.2%-50% area I call the “Correction Zone”. It is where corrections of trend moves should stall if the buyers are still holding the control over the sellers. It is also where patient traders who missed the run up should be happy to enter.
Below the 50% the waters start to get more muddy as for the trend. It is below the midpoint of the move. You have to question the heart of the buyers if they ran the price higher, and then are not anxious enough to buy at 50% off. Shoppers love 50% off. Traders should love 50% off too. Sellers are taking more control below the 50%.
The 61.8% may hold support too, but by the time it reaches that level, anything can happen. You have to adjust your trend vision to NOT anticipate a new high probability. When the market corrects to the 61.8%, you just lose some traders along the way. It is not to say that the price cannot return to the highs (assuming going higher), but whereas your confidence of a new high on a 38.2% retracement hold is 80%, the confidence of a new high after 61.8% correction is 38% (just generally speaking)
So what has bitcoin done?
Looking at the hourly chart above, the trend move started at $8930 and ran to $11215. THe 38.2% of that move higher comes in at $10342.. The correctvie low reached $10321 – just below the 38.2% retracement. So buyers remain in firm control. Sellers from above (the highs) are still hoping for a break lower to give some more confidence. However, 61.8% of the shorts from the $8930 low are still losing money at the 38.2% retracement. They feel that pain and can still be squeezed higher (and winners from above may be forced to take profit too).
So with the 38.2% correction holding, the technicals are still showing the buyers are in firm control.
The old high is a target. Another target comes from the daily chart below. The 50% of the big move down from the December 2017 high comes in at $11510.44. Like the 50% on the hourly chart, it too will be key for the longer term picture of bulls and bears. It is a big line in the sand that buyers will need to break to keep the run higher. Be aware.