Tuesday, 20 February 2018

Bitcoin: Needs to Break Out of this Falling Channel

Since i sold near the top in December 2017, i had been trying to re-enter Bitcoin at a lower price.

If there's a market where HODL is a bad idea, it would be Bitcoin (and crypto coins in general) because of its extreme volatility. The lower the volatility of an investment, the better is the HODL approach (e.g. Apple company shares). In fact, trading a financial instrument with relatively low volatility would more likely lead to loss.

Of course, if you're not a good trader (aka a competent technical analyst with mental discipline and emotional stability), HODL might be the only option.

In the last correction (although the term 'crash' is a more accurate technical definition), Bitcoin prices dropped by some 70% (anything over 50% is called a crash). And a few 80+% crashes had occurred before. So this last crash isn't the worst on record. For the newbie, it seems that way.

I don't expect to perfectly time the top and bottom. But with a 70% price drop, even if i could only managed to save myself about 50% of this fall, that's a worthwhile effort (I lost a little over 20% due to imperfect timing).

The chart below shows my 2 attempts before succeeding. I sold in early Dec, and bought it back when the prices reached a 50% Fib retracement (not the same as 50% decline in price).

You can see that from the chart that this is an important level as Bitcoin prices spend quite a bit of time consolidating here. But when this strong support breaks, i decided to sell, and waiting for lower entry because when it breaks below this important level, it can travel quite far below (and it did). I found my lower entry when prices breaks back above 200D MA (red line) AFTER breaking below it.

The 200D MA is a strong support. After breaking below, it quickly reversed course (only took 2 days), it's considered a false breakdown, which is quite bullish.

Also the very impressive volume accompanies this bounce gives me a boost of confidence for this entry. The volume spikes suggest whales (and/or smart money) are buying here, making it a bottom.

Bitcoin chart showing 50% Fib retracement
(Click chart to enlarge)

Today, the price just moves back above this 50% Fib retracement (after encounters some resistance). Price development has also been positive lately. If you look at the falling channel, in the last 5 days, prices have moved back above the centre-line of the falling channel (marked by dashes "------" in the chart). It hadn't done so since middle of January.

The next positive thing Bitcoin prices need to do is to break above the purple falling channel. In the last 2 times, it kissed this top channel and fell, hard. As long as prices stay in this purple falling channel, by definition, it's still in a down trend or correction mode.

Even if it backs off from the upper falling channel, i would keep holding on as long as it stays above the 50% Fib retracement. It likely chops around or goes sideways between the upper falling channel and the 50% Fib for a little while before breaking out. Would be a surprise if price simply goes straight up from here and breaks out the upper channel in the relative smooth price actions that we have been witnessing since the bottom.

If nothing else, after a strong run for the last few weeks, it needs a rest.

For all these reasons, i expect prices would struggle in the next few days to a week or a little longer. But once we break above this falling channel and into the white space above, i expect the resume upward price move to be strong.

I think it would do so soon. There's no need to speculate. Just wait and see, and it isn't a long wait.

No comments:

Post a Comment