LTCUSD: The Retrace Before 500?

LTCUSD update: The 350 all time high then followed by a pin bar leads to corrective price action and a potential support. In this report I am going to highlight the risk/reward and what to look for upon a retest of the high.

I have always considered LTC more of a buy and hold type of market rather than a trading market because the price action was not as eventful as the BTC and ETH markets. Now that it has broken out to dramatic new highs, this market might offer some short term trading opportunities as well.

On that note, the current price action is showing a minor correction. It went from 350 to 244 in a matter of hours (in the coin world, that is minor). 244 is the .382 of the bullish structure measured from the 73 low. In strong markets, this retrace level often holds and is a good place to look for reversal patterns. A bullish pin bar is currently in place on this time frame which is a sign of buying.

Any retest of the 244 level followed by a double bottom or failed low would generate a buy signal based on my trading plan. By the time the appropriate candles are in place, you will most likely not get the 244 price, but high 240s to low 250s is not unreasonable.

As far as risk goes, it is clearly defined by 244. That means if you are looking to take a short term swing trade, a stop can be placed somewhere slightly below this level, which will then shed light on the attractiveness of the trade. Based on the current structure, a retest of the 300 level is reasonable and when compared to the risk, (assuming an average price of 250) you are looking at around 5:1 which is more than acceptable. Keep in mind, attractive risk/reward is not a trigger to enter a trade, but instead a guide to help filter if a reversal pattern is worth entering or not.

Why 300 and not 350? Why not higher? Reasonable risk and reward is based on market proportions, not feelings, hype or fundamentals. There is a .618 resistance zone at the 309 to 326 area, plus 300 may act as a psychological resistance. Remember, this is the short term trading mentality and NOT to be confused with investing (It seems most new investors and traders have no idea how to differentiate between the two mindsets). A retest of the 300 level is an area to take some short term profits IF that is the type of trade you have entered.

In terms of the bigger picture, there is a 1.0 extension at the 507 level which is projected from the 244 low and is not that far fetched given the blind euphoria in these markets. This target would serve as a level to lock in some profits for longer term trades (long term in this market is a couple of months). There is no guarantee that this level will be reached and is based on the proportion of current price action. Some unexpected news can come out and completely change everything (long term TA cannot account for that).

What if this market keeps going lower? A break of 244 can possibly lead price back to the 178 to 133 area which is the .618 support zone of the current bullish structure. Anything goes in these markets. IF price revisits this area, any broader reversals would serve as good buying signals, especially for longer term positions.

In summary, buying pull backs in strong markets is an effective behavior when it comes to timing markets. When and how to enter exactly is more of a function of your trading plan, outlook and risk tolerance. If you are more long term, then less precision and more pain tolerance is in line with that mindset, while the short term trader needs to adhere to specific criteria like levels, reversal patterns and exiting at proportionate targets. What many new traders do not realize is that it is possible to employ multiple time horizon strategies simultaneously, it is just a matter of keeping them separate, almost like trading different accounts, or different instruments. Is it easy? No, but this is why having a well defined trading plan is so important.

Comments and questions welcome.