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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: Monero

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The Monero/US Dollar pair (XMR/USD) climbed as high as $469.50 on December 20, 2017. This marked the end of an impressive bull run that saw the pair grow by more than 700% in four months. From this point, the XMR/USD has been in a downward spiral. The good news is that a significant bounce is on the horizon.

Technical analysis reveal that XMR/USD is showing signs of a potential rally. First, we see the pair about to hit the apex of the large falling wedge on the daily chart. This pattern is so large that it is also visible on the weekly chart.

A quick look at the falling wedge shows that the market always bounces when it drops to the support. The market is currently sliding down the support side of the wedge. This gives us reason to believe that a bounce is in play.

On top of that, XMR/USD is also about to touch its long-term support. This trend line has existed since March 2017. The strength of this support should make it difficult for bears to push the price further down.

Lastly, we can see a bullish divergence on the daily RSI. This tells us that XMR/USD is gaining momentum. This signal also affirms our arguments that the support will hold and that will lead to a significant bounce.  

The strategy is to buy as close to $80 as possible. Should bulls hold on to this key support, they will likely inspire a rally to our target of $125.

The process may take less than a month.

Daily Chart of Monero/US Dollar on Kraken

As of this writing, the XMR/US Dollar pair is trading at $82.59 on Kraken.

Summary of Strategy

Buy: Buy as close to $80.00 as possible.

Target: $125

Stop: $75

 

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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2 votes, average: 3.00 out of 52 votes, average: 3.00 out of 52 votes, average: 3.00 out of 52 votes, average: 3.00 out of 52 votes, average: 3.00 out of 5 (2 votes, average: 3.00 out of 5)
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3.6 stars on average, based on 223 rated postsKiril is a financial professional with 4+ 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 ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. 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: Aeternity

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The Aeternity/Bitcoin (AE/BTC) pair surprised investors when it went as high as 0.0006333 on April 29, 2018. Before that move, AE/BTC was trading at a low of 0.000159 on March 18. This means that those who bought at the low grew their investments by over 300% in less than a month.

Unfortunately for buyers at 0.0006333, participants exploited the pump. The market has been dropping since. Nevertheless, it appears that AE/BTC is ready for bottom picking.

Technical analysis show that AE/BTC is trading inside a large falling wedge. The pattern is about to hit the apex just as it is about to touch the line in the sand of 0.000165 support.

Call it coincidence, market psychology, or manipulation. What’s important is that we know that 0.000165 is an area where demand exceeds supply. This is the staging ground that kickstarted the bull run earlier this year when the market surged to 0.0006333. This tells us that the “smart money” likes to buy at this price level.

The strategy is to buy as close to 0.000165 support as possible. If our assumption is true, then the “smart money” or the “whales” will start buying at this level. They will also defend on the support to protect their positions. This should spark a rally to our initial target of 0.0002532.

The process can take less than one month.

Daily Chart of Aeternity/Bitcoin on Binance

As of this writing, the Aeternity/Bitcoin pair is trading at 0.000176 on Binance.

Summary of Strategy

Buy: As close to 0.000165 as possible.

Target: 0.0002532

Stop:  0.000159

 

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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3.6 stars on average, based on 223 rated postsKiril is a financial professional with 4+ 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 ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. 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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Long-Term Trade Recommendation: ZRX

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The 0x/Bitcoin (ZRX/BTC) pair looks bearish short-term, but it looks quite the opposite in the medium and long-term. The drop from 0.00018629 resistance appears to be a “buy on dip” rather than a full-blown correction. We have the technicals to support our view.

Technical analysis show that ZRX/BTC is trading within a wide ascending channel in the daily and weekly charts. The structure looks strong because it is not widening nor contracting. On top of that, the higher highs and higher lows are generated as a result of healthy consolidations and corrections. The symmetrical triangle pattern emerging in the daily chart is proof of this healthy consolidation.

Currently, the symmetrical triangle pattern appears to be completing the C-wave, which is often the penultimate leg down before the breakout. ZRX/BTC needs to complete two more waves before it can break out of the pattern and resume its climb to the top end of the range. Triangles take time to complete, which is why this is a long-term trade recommendation.

The strategy is to buy as close to 0.00012 as possible. If bulls preserve the long-term support, they will inspire a rally to our initial target of 0.00017. We expect one more leg down before ZRX/BTC can climb to our longer term target of 0.00025.

The process may take three months.

Long-Term Chart of 0x/Bitcoin on Binance

As of this writing, the 0x/Bitcoin pair is trading at 0.00013570 on Binance.

Summary of Strategy

Buy: As close to 0.00012 as possible.

Target: 0.00025

Stop:  0.0001

 

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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3.6 stars on average, based on 223 rated postsKiril is a financial professional with 4+ 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 ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. 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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