Bitcoin sellers are making a bigger play today with the price moving below its 200 day moving average at $73,086 and the 50% retracement of the recent trend move higher from the July 1 low which comes in at $72,554 (see the chart below). The current price is trading at $72,216. Those breaks are key for traders, and because of them, they will now require buyers to reclaim those broken levels to take some of the selling pressure off, and to take back some control from the sellers.
The educational lesson is how those technical levels help traders make decisions. Where are buyers making a stand? What happens when that support breaks? What would tell sellers that the break is failing?
Those questions turn a chart into a trading plan.
Support gives buyers a place to lean.
A key moving average or retracement (outlined in the chart above) gives buyers a reference point. Buyers can lean against support with the expectation that the level will hold. If it does, they have an opportunity to participate in a rebound with relatively close risk. Yesterday the price fell below the 200 day moving average, but could not get below the 50% retracement level. The price rebounded back higher. The rebound to the upside ended up finding willing sellers against the low of the swing area between $74,925 and $76,082. The high price got withing $300 of that level, but the rally stalled. The inability to get back into the old floor area (the floor became the ceiling), gave the sellers the go-ahead to push the downside – and they did.
So although there was support near the 200 day and the 50% retracement yesterday, traders need to understand that support does not come with a guarantee. Those levels are still in play. They also need to understand that there are benchmarks that any corrective move has to reach to turn the bias around. That was the old floor (now ceiling).
Today, when the price breaks below and stays below the 200 day and the 50% retracement, the reason for buying against that level weakens. Buyers need to recognize that change. A trade entered with close risk loses that advantage if the trader keeps moving the exit farther away.
That is the first lesson: identify what would prove the trade wrong before entering it.
Broken support becomes a barometer.
Today, the 200 day and the 50% have been broken. With Bitcoin below both technical references, the 200 day moving average and 50% retracement become overhead barometers and risk defining levels.
If a rebound stalls against those levels, sellers retain the technical advantage. Buyers may be pushing the price higher, but they still need to get through the resistance created by the break.
If the price moves back above both levels and stays above, the bearish break becomes less convincing. Sellers would need to respect the possibility of a failed break and a further recovery.
The distinction is important. Trading below a level gives one message. Breaking below and then quickly recovering gives another.
A break needs follow-through.
A move through support is the first step. What happens afterward helps determine the quality of the break.
Can sellers keep the price below the broken levels? Do rebounds attract selling? Can the price extend toward the next downside target?
If those things happen, sellers strengthen their control. If downside momentum stalls and buyers reclaim the broken levels, the technical picture changes.
Traders do not have to predict that outcome in advance. They need to recognize which outcome is developing and manage their risk accordingly.
Define the risk. Then follow the price.
The approach I discuss in my book, Attacking Currency Trends, centers on using technical tools to identify opportunities and define risk. That same discipline can be applied to Bitcoin.
For this setup, the process is straightforward:
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Bias: Sellers have the technical advantage while the price remains below the broken support levels.
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Risk: A sustained recovery above those levels would weaken the bearish case.
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Targets: Further downside progress requires sellers to break—and stay below—the next support levels.
Knowing the direction you want to trade is only part of the job. Knowing where that trade stops making sense is just as important.
For Bitcoin, the sellers have made their move. The next test is whether they can keep control below the broken support. Buyers have their assignment too: reclaim those levels and stay above them.
This article was written by Greg Michalowski at investinglive.com.