This morning, Tom says to me “Cryptos are looking like good shorts.” He’s right.
Take a look at the daily chart of Bitcoin Cash:
- Recently broke below a channel with a clear support level.
- That breakdown was on good momentum. How do we measure that momentum? New MACD low (relative to recent history) and/or reaching the lower Keltner Channel.
- The bounce was “reluctant”, setting up a bear flag.
- Similar patterns exist in other tightly correlated assets. (In this case, look at the daily charts of other cryptos. They are different, of course, but show similar structural factors.)
Can enter shorts on a breakdown of a pattern like this, and manage with partial profits, trailing stops, or whatever tools work for you.
The great thing about flags is they provide clearly-defined entries in trends, or even sometimes at the beginning of new trends. Oh, and it’s no little thing, but they also put probabilities in your favor, which can’t be said about many other patterns.
Even if you don’t trade cryptocurrencies, this is a pattern that you must learn to recognize.