Forex can be a painful environment sometimes. Whereas stock traders have a number of different mathematical ways to derive the ‘true value’ of an investment the world of forex is a bit more perplexing. It’s a battlefield; every inch of ground is a war fought between high frequency traders, scalpers, swing trader, and any other number of strange techniques, often times movements seem to happen for next to no reason at all, but there is one constant unavoidable property.
The Law of Retracement
Forex markets never touch a support they don’t intend to test again and we’ve been living on borrowed time since December. What is initially seen as purely a result of panicked selling some time later becomes an inevitable support target.
I’d hypothesize that this property has something to do with the underlying psychology that drives forex markets. Even though the crash results from panic, having seen the market crash to these lows before traders don’t feel comfortable buying in turbulent markets till we hit the lowest low we know is possible.
Whatever the reason ~419 is the number that’s been in the back of all of our minds for the last few months now, and we’ve hit it.
So What Now?
Don’t assume that because we’re below sea level we have to go to the top of Mt. Everest, all this means is ‘the debt is payed’. I doubt we’ll go much lower, as a scalper/channel trader my overall strategy doesn’t change much with the trend but I’ve got a policy about not pissing in the wind. Don’t short in an uptrend, and don’t long in a downtrend, so what this should mean for short/medium interval traders like myself is its time to close short position and wait. For swing and long interval traders this might mean its time to start looking for a long entry.
A Good Entry Target would be below ~419 or close to it with stops just outside of the average true range. To give an example, my long entry for a position I plan on sitting on for a couple of weeks was 399, and my stop for this position is ~370, but I warn you now this is not a position you want to gamble on. I know I said this is rock bottom but the risk on long positions is still very high. CryptoForex doesn’t have regulations to protect your positions from flashcrashes and mass panic.
Take Profit Targets will be dodgy, and I highly recommend managing positions according to Ruien’s (Ryan Sanden) 3 bar trailing stop method.
If the market does flip over into a rally we can expect some significant resistance in the upper 500’s and an absolute impasse in the upper 600’s. The small upside to this crippling downtrend is we now have everything between 300 and 1000 mapped for just about all resistances and supports.