Bitcoin’s surge has slowed down a bit now that it met resistance at $400. How should we trade Bitcoin?
I will start from the larger timeframes and move down to charts showing more detailed action of the past few days. So, let’s go over the daily chart of Bitcoin.
Back in April and during the Cyprus financial crisis, Bitcoin took off to $250 for the first time. It quickly retraced to $50 though. For the next 5 months Bitcoin price consolidated and did not climb above $150. During that consolidation period I explained why I would sell Bitcoin close to significant resistance levels.
I could also make a point though why we should look to go long as well in July, when Bitcoin printed a double bottom on the daily chart. By September Bitcoin was constantly failing to go lower than $100, making higher lows but could not manage to overcome the resistance at $150. Eventually though it penetrated that level and quickly climbed to $240 in October, meeting resistance at about the same level with the previous all-time high.
The minor retracement that followed in the following week could have been considered a major signal as a continuation of the trend. Bitcoin found support at $170, where it had met resistance back in April as indicated on the chart. This shallow retracement meant that buyers were still controlling the market while weak investors were closing their positions.
And then Bitcoin surged to almost $400 in a matter of 10 days’ time!
Why did Bitcoin’s surge slow down at $400?
Because the 161.8% Fibonacci extension is nearby. And I am not saying that today, after Bitcoin pulled back a hundred dollars! I commented about that in a discussion at Facebook a couple of days earlier.
Yet, that pullback is now history. How should we look to trade Bitcoin nowadays?
Follow the trend in Bitcoin trading
It’s obvious Bitcoin is trending upwards. Thus, I would be looking to trade long. Therefore, I would look for an entry point during a pullback. At the time of writing, I would wait until Bitcoin drops to $250 area. If it doesn’t, no big deal. There’s a million other assets to trade. Yet, in case it does approach the previous resistance, I would load charts of shorter timeframes to pinpoint my entry.
Let’s do that, imagining we traded the recent retracement to $300.
The hourly chart of Bitcoin of the last 10 days
Bitcoin has been trending above the 50 simple moving average (SMA). It briefly tested that SMA quite a few times the past few days and finally collapsed on November 10.
On the 7th of November Bitcoin bounced off that level twice. The second time it did so, a hammer candlestick was printed at the hourly chart, followed by a strong bullish candlestick.
Thus, $300 area would expectedly provide support the next time Bitcoin would test the waters. And it did so today.
The long wicks of the candlesticks show that buyers are rejecting the downwards movement today. If we were to trade long, we should place a stop loss at about $280, a bit lower than the low of the support level on November 7. We would stand to lose 20 dollars per Bitcoin. Profit target would be set at $400 for a nice sharp ratio (risk/reward) of 5.
Or maybe not?
There are a couple of other possible profit targets, like $360 or $380. Even $340 would have been a good exit point to take the first profits and close a third or half of our position. At the same time, we should be moving out stop loss at the entry point ($300), so that we guarantee ourselves a risk-free trade.
Moving down to the 15min Bitcoin chart
I guess it’s clearer now why we should trade out some of our position at $360. Bitcoin has met resistance exactly on the 200 SMA at the 15min chart, possibly indicating a trend reversal in that short timeframe.
Remember, Bitcoin is still trending upwards in larger timeframes.
Let’s magnify the 15-min chart and look at the past 2 days.
I have also added the RSI indicator. Note that RSI dropped below 30 today, verifying the oversold conditions of the market at that moment. That’s just one more reason to have gone long at $300 area.
If I had traded today, I would have taken my first profits at $330 territory and I would have closed 70% of my position when Bitcoin was rejected at $360. I would have now been left with 30% or so of my position, to keep me interested in my investment in Bitcoins. Should it drop at $300 I’m out, but if it retests the resistance at $400, that’s more profit for my trade.
Yet, I have no position on Bitcoin at this moment and I assume you don’t either. The scenario above simply explains how I would be looking to trade Bitcoin in the future as it continues to go higher. I will point out possible entry points during a pullback at the daily chart and will look at shorter timeframes for a more fine-tuned entry.
Best of luck if you are trading Bitcoin nowadays.