Fresh swing trade strategy on Solana

On the daily timeframe, SOL has established equal highs and lows, indicating a large range, while Bitcoin has formed lower lows and lower highs, creating a classic bull flag pattern. 

Given the lack of a major positive catalyst, we must respect Bitcoin's structure and apply similar rules to Solana, projecting potential downside. This approach will allow for a more calculated swing trade on SOL, considering the risk-to-reward (RR) ratio.

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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The playbook 

Here's to take the trade.

Setup 1: Scale-in strategy

Objective: To scale into a SOL position by splitting the risk across key levels: $130, $120, and $110. 

Hypothesis 

The idea here is to manage risk by entering at multiple levels as the price draws down, leveraging the potential for a bullish rebound. This strategy acknowledges the possibility of a significant drawdown, especially considering the wick that formed at $110 on August 5.

The play

• Initial entry: Start with a smaller position at $130.
• Scale-in: Add to the position at $120 and then again at $110.
• Risk consideration: Given the bullish conviction, if the price moves closer to $110, consider increasing the margin or utilising more leverage to gain more exposure.
• Stop loss: A 50% drawdown would place the liquidation level around $66-$65, which should be acceptable if you're taking a 2x leveraged position. However, expect substantial drawdown risk, especially at $110. 

Leverage & margin 

Consider using 2x leverage initially. As the price drops and you scale in, it potentially increases leverage or margin. Remember, the lower the price, the higher the risk-to-reward ratio and the higher the risk. 

Key levels

• $130: First entry point. Allows participation in case of a bounce. 
• $120: Strong historical support with multiple wicks near this level (April 13, April 30, July 24, July 5). 
• $110: Psychological level and historical support, marked by the August 5th low.

Setup 2: High-conviction entry at $120 

Objective: To take a high-conviction long position at the $120 level with tight risk management. 

Hypothesis 

$120 has proven to be a significant level for SOL, with multiple touches and wicks indicating strong demand. Given the overall bullish sentiment in the market, this level offers a high probability of a successful bounce, especially if Bitcoin and the broader market maintain their structure. 

The play 

Entry: Enter at $120 with a larger position size, considering the strength of this level. Leverage: Consider using 3x leverage, which allows the price to drop to $80 before liquidation or stop-out, depending on your risk appetite; 2x leverage would also be fine here as the deeper we go in price, the better the rewards anyway 

Risk management 

If adding more margin as the price drops, use lower leverage to avoid overexposure. The goal is to capture the expected upside while minimising the risk of liquidation.

Cryptonary's take  

In summary, the Solana setup involves managing risk across key levels, with a focus on $130, $120, and $110. The scale-in strategy allows for a more flexible approach, while the high conviction entry at $120 is for those looking for a more direct play. 

Patience and a clear understanding of the broader market structure are essential in executing these strategies effectively. By positioning ourselves correctly and using the right leverage and margin, we can capitalise on the expected bullish rebound while controlling downside risk. 

However, remember that with added exposure comes added psychological pressure. The market will do what it wants, and every setup, no matter how strong the thesis, has the chance of being a loss. 

When we look at price predictions and understand the context of this market, these levels still offer great spot-building opportunities, which should always be considered first in this early stage of the bull market. 

However, the leverage options are here for those who are confident and want to gain more exposure. Ensure every trade doesn't offer too much risk to your capital, as the opportunity cost in building a spot bag and taking on higher-risk leverage trades is far stronger on the spot-building angle.