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Add to Bitcoin Positions on Panic Selling

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We had recently written about a likely bottom in bitcoin, however, the pullback was shallow and the cryptocurrency is on the verge of a breakdown once again. While it is difficult to pinpoint an exact bottom, we can estimate the process of a bottom formation.

Key observations

  1. Bitcoin is looking weak and is likely to fall further
  2. The RSI has entered into the oversold territory, which has historically been a good buying opportunity
  3. If the RSI falls below the current levels of 28, it can fall to 25 and 21
  4. We recommend buying bitcoin close to $5,500 to $5,800 levels for the long-term

Markets became frothy in 2017

In 2017, the mood among the various investors, be it stock market or cryptocurrencies was upbeat. Both were on a scintillating run, though the stock market returns paled in comparison to the cryptocurrencies.

Nevertheless, dips proved to be shallow and pullbacks always made new highs. Various analysts projected lofty targets and the media wrote stories about the riches earned by the investors in cryptocurrencies.

This led to a new breed of greedy traders who believed that the stock markets and the cryptocurrencies were never going to correct. This led to reckless investments using borrowed money.

Markets have entered a risk off phase

Experienced traders know that parabolic rallies are unsustainable. Therefore, in 2018, first, the cryptocurrencies entered into a profit booking phase, which later escalated into a full-blown selling by the traders who were stuck with long positions at higher levels.

Similarly, the stock markets, which started the year on a high note, have corrected sharply in the past week, which points to a shift in investor sentiment from risk on to a risk off mode.

We may see one more leg of panic selling

With cryptocurrencies falling, the news of hacking in Japan, the crackdown on anonymous cryptocurrency trading in South Korea, card companies prohibiting cryptocurrency purchase on credit cards are all news that are likely to create more panic.

In this panic, the weaker hands are likely to sell aggressively fearing a complete loss of capital because the media starts to highlight the bearish views of analysts.

What levels can the panic selling drag Bitcoin to?

In our previous article, we had highlighted how the 200-EMA had acted as a strong support for long-term purchases in 2017. We expected the moving average to hold this time also, however, it failed. Now, we want to look at another possible indicator, which is flashing that a likely bottom is around the corner.

In the past three years, there have been seven instances when the declines pushed the RSI into the oversold territory below 30 levels and on all the occasions Bitcoin either bottomed out on the same day or entered into a bottoming process. These panic selling’s resulted in a low, which was a good time to buy for the long-term.

Bitcoin bottoms coinciding with a low on the RSI

SN Date RSI low
01 September 14, 2017 27.2421
02 July 16, 2017 28.4791
03 August 02, 2016 21.0585
04 January 15, 2016 25.747
05 August 18, 2015 21.1003
06 April 15, 2015 29.1537
07 January 17, 2015 25.0161

How low can prices fall from the current levels?

At the current levels, the RSI has already entered into the oversold territory as it is quoting at 28.0556 levels. In the previous instances, we have seen that if the RSI doesn’t bottom out at 28 levels, it then falls to 25 and thereafter to 21 levels.

If bitcoin doesn’t find support close to the major support level of $7,500, which is also the support line of the descending channel, then the next stop on the downside is $5,511 levels. Also, the slide from $7,500 to $5,500 is likely to be a quick one as the longs liquidate in a state of panic. That is likely to sink the RSI further lower towards the levels which have previously resulted in a bottom.

Therefore, we believe that the long-term investors should invest about 40 percent of their desired allocation in the range of $5,500 to $5800.

Will this start a rally in Bitcoin?

Not necessarily.

After such a sharp fall, we are likely to witness a process of bottom formation, which will result in a few volatile days of trading before the cryptocurrency embarks on the next uptrend.

Therefore, this purchase should be undertaken by the long-term investors only who want to own Bitcoin for a few years.

Traders should stay calm and buy on panic dips

Though we all have heard to buy low and sell high, doing it practically is very difficult because you have to go against the herd.

Buying when the sentiment is negative and when there is fear among the traders is not easy. However, history shows that such panics usually result in a good buying opportunity for the long-term traders who purchase and hold their positions.

Recommendation

Bitcoin is likely to decline to the $5,500 to $5m800 levels in the next few days, if the $7,500 level breaks convincingly. That is likely to be a level that is close to the bottom.

Therefore, long-term traders should buy around 40% of their desired allocation at those levels and hold. We already have about 25% of the desired allocation purchased in the range of $8,600 to $8,900. That brings the total buy to 65%.

We shall update on when to buy the remaining position.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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3 Comments

3 Comments

  1. TomBrazil

    February 5, 2018 at 5:40 pm

    Best post so far. Thank you! Good timing.

  2. MinerMatt17

    February 5, 2018 at 5:50 pm

    Yes, indeed, excellent post.

  3. cryptoking787

    February 6, 2018 at 3:39 pm

    Well done. This is why hacked is worth it

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Trade Recommendation: Waves

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One of the most important things that has kept our losses minimal during this bear market is that we never allow the fear of missing out influence our trading decisions. When we see an altcoin that we have no positions in rally, we do not immediately jump on the bandwagon. That’s how a lot of new retail traders lose their capital. Instead, we wait for a significant pullback and signs of consolidation. This is exactly our approach to trading Waves (WAVES/BTC).

Waves was among the first to decouple from Bitcoin’s trend. From the low of 0.0002336 on November 21, 2018, it skyrocketed to as high as 0.001209 on December 19. That’s an increase of over 400% in less than a month. From that point, the market has been correcting. After two months of consolidation, we’re convinced that Waves is due for a rally.

Technical analysis reveal that Waves/Bitcoin is trying to carve a short-term bottom of 0.0007. This view comes after the market refused to breach this level after four attempts in less than two months. While others may argue that the support is now weak due to multiple touches, we believe that this is a case of accumulation rather than demand drying out. Volume supports this assumption.

First, we can see that volume has significantly decreased since December 19, 2018. This tells us that sellers are losing ammunition. Also, volume is thin whenever Waves touches support of 0.0007. This indicates that many participants are not interested in selling at these levels. Thus, it is likely that the market maker attempts to keep the price low and shake out as many participants as possible.

The strategy is to buy as close to 0.0007 support as possible. If bulls continue to preserve the support, they will likely attract the momentum they need to move to our targets of 0.00087 and 0.001047.

The process may take less than a month.

Daily Chart of Waves/Bitcoin on Binance

As of this writing, the Waves/Bitcoin pair is trading at 0.0007152 on Binance.

Summary of Strategy

Buy: As close to 0.0007 as possible.

Targets: 0.00087 and 0.001047.

Stop: 0.000675

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 330 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Trade Recommendation: Stellar

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We removed Stellar (XLM/BTC) from our watch list when it failed to hold 0.000026 on January 28, 2019. At that point, we knew that a move below this level will likely result in panic selling. That’s because 0.000026 stood as the market’s 2018 support. Stellar has managed to stay above this level for the whole of 2018. Thus, the move below it on January 28, 2019 ignited massive selling.

To stop the bleeding, Stellar needed to generate heavy volume on the daily chart. This would indicate that a big buyer has stepped in to absorb the selling pressure. We suspect that this happened yesterday, February 19.

Technical analysis shows that XLM/BTC is attempting to carve a durable support at 0.000021. This view comes after Stellar printed heavy volume yesterday when the market touched 0.000021. On February 19, the volume skyrocketed to 142.652 million XLM units when the daily trading average was about 60.614 million XLM units. The last time Stellar generated this type of volume was five months ago. This was an indication that a large player has stepped in.

In addition, XLM is trading near oversold conditions. With the market being so badly beaten over the last couple of months, it is due for a relief rally at the very least.

The strategy is to buy as close to 0.000021 as possible. If bulls can stay above this level, they will likely generate a rally to our targets of 0.000026 and 0.00003.

The process may take a month.

Daily Chart of Stellar/Bitcoin on Binance

As of this writing, the Stellar/Bitcoin pair is trading at 0.00002288 on Binance.

Summary of Strategy

Buy: As close to 0.000021 as possible.

Targets: 0.000026 and 0.00003.

Stop: 0.00002

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 330 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Trade Recommendation: EOS

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EOS (EOS/USD) is a market that looks primed to explode.

It established a short-term bottom of $1.55 on December 7, 2018. At that point, the market lost over 93% from its 2018 high of $23.029 on April 29. While this crypto looked dreadful when it recorded its 2018 low on December 7, volume on that day was significantly heavy. This told us that the smart money was accumulating positions in bulk while stopping the bleeding at the same time.

With buyers emerging, EOS entered an accumulation period as it range traded between $1.75 and $3 for over two months. This period ended yesterday when the price decided to trend higher.

Technical analysis shows that EOS took out resistance of $3 on February 18, 2019. This triggered the breakout from range accumulation, which may have likely signalled that the bottom is in. Also, the breakout looks valid. Yesterday, the coin printed volume that’s over 300% of its daily average. This tells us that sentiment has likely shifted from bearish to bullish.

Yesterday’s move, however, pushed EOS to overbought territory. Also, the 200-day moving average is acting as a resistance. These signals indicate that this altcoin is due for a pullback. We’ll take this chance to buy on dips.

The strategy is to buy on the retest of $3. If bulls can stay above this support, they’ll likely gather the momentum to rally to our range midpoint of $4. Take that out and the next target is $5.

The process may take less than a month.

Daily Chart of EOS/US Dollar on Bitfinex

As of this writing, the EOS/US Dollar pair is trading at $3.7441 on Bitfinex.

Summary of Strategy

Buy: As close to $3 as possible.

Targets: $4 and $5.

Stop: $2.88

 

Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 330 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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