REPEATING OLD HABITS - Box strategyPRICE IS KING:
I removed all my indicators for this analysis. I just want to focus on price. Price, after all, is king, and every indicator (RSI, Money Flow, moving average) is just a derivative of price.
Price is also a reflection of supply and demand, and the human behavior (fear and greed) behind supply and demand.
PRICE HAS MEMORY
Sometimes price has a memory and repeats its old behaviors - It's hard to teach an old dog new tricks, and people repeat their habits.
Therefore, that's why we see price patterns repeat themselves, because humans repeat themselves. Technical Analysts are partly like psychologists, looking for behavioral patterns that repeat themselves. Unlike psychologists, we want to take advantage of those behaviors to make money.
FORMING A BOX - Box 1
I have created two boxes on the chart. The first BOX 1 has borders based on the support and resistance levels between roughly 2000 and 3000. Bitcoin climbed to 3000 for new all time highs back in June, but sold off quickly and fell to below 2000 by mid-July. It didn't stay for long at those low levels, however, and shot back up to 3000, where it rested until finally breaking out in early August on it's climb to new all time highs at 5000. But in BOX 1, we see the price bouncing between the upper and lower bounds, between 3000 and 2000.
HOW TO TRADE A BOX
Within the box it is a mess, and it's difficult predict a trade, because the price is just bouncing around, almost randomly as buyers and sellers adjust their positions.
But there ARE good buying opportunities at the bottom of the box, or on the breakout of the box (to the upside OR downside).
BITCOIN'S BOX 2:
BOX 2 is a box in formation. We see a similar pattern, with all time highs at 5000, then a quick pullback. Box 1 had a pullback of 30% from it's top boundary resistance to bottom boundary support (3000-2000 = 1000, 1000/3000 = 30%). If we see a similar 30% pullback in Box 2, then we can expect the bottom box boundary at 3500 (5000 - 3500 = 1500, 1500/5000=30%)
HOW TO TRADE A BOX 2:
In the second box, we can make a trade by buying in at the bottom of the box's range, selling at the top of the range, OR waiting to buy a breakout of the box to new all time highs.
CONCLUSION
Boxes are a nice way to look at consolidation patterns that may seem too disorderly to place in the category of a flag, triangle, or other tight technical pattern. Boxes define a range, and we can either play the range OR wait for a range to breakout to the upside or downside.
