Fractal Rule #2 – Reversals Start From the Inside-Out

Is this a true reversal or just a dead cat bounce? No doubt you’re hearing the entire online world speculating on whether or not “this is the ONE that we’ve been waiting for!” 

You know what? I don’t really care whether this one is “the one” or perhaps just an overdue bounce off of the bottom. I’m going to let price show me the way. 

And “the way” is to use multiple timeframes to let me know how strong this swing is off the bottom. 

Let’s start out with a fractal chart of BTC with the weekly and daily charts laid out side-by-side:

Rule #2 of Fractal Energy Trading says that “reversals start from the inside-out, and propagate higher in timeframe.” What this means is that the reversal in trend back to the upside occurs at the smallest timeframes first, and is there is anything truly behind this reversal, then the baton will progressively be handed off to higher and higher timeframes. 

And higher timeframe charts carry much more “weight” and influence. 

Notice the daily chart on the right side; it started transitioning back to an uptrend on 12JAN when it broke above the $18.4k level. Higher highs and higher lows. Since that point every “high” has been a “higher high,” and every “low” has been a “higher low.” That’s an uptrend! 

Now…has this daily uptrend passed the baton off to the weekly chart yet? (left side)

Not…quite. The price has “taken out” the former “lower high” at about $21.5k which occurred right before the FTX contagion hit in early November 2022. This means that the price is now making a “higher high” on the weekly chart, but we have no associated “higher low” yet. 

But the probabilities of it doing so and transitioning to a WEEKLY uptrend have increased! 

I myself will be looking for that formation of an important weekly “higher low” as a potentially important trading signal, which will be accompanied by lots of moaning and hand-wringing as the price will have pulled back off of a relative high. 

The best opportunities always feel the worst to take! Be prepared for that upcoming higher low on the weekly chart by understanding your pullback and breakout strategies through the Fractal Energy Trading course, and the RSILaguerre study as well.