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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: Ambrosus

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We’ve been keeping tabs on Ambrosus (AMB/BTC) since it managed to create a short-term bottom of 0.00001595 on September 12, 2018. With a bottom in place, Ambrosus had space to rally. That’s exactly what it did.

Ambrosus gathered the momentum required to climb as high as 0.00003511 on October 21. Like many of the altcoins we’ve included in our trade recommendations, Ambrosus was not yet ready to launch a bull run. So, it corrected back to range support. The market may not be bullish yet but we may have an opportunity to profit from this sideways trading.

Technical analysis shows that AMB/BTC has once again respected range low of 0.000016. The ability of Ambrosus to stay above this area tells us that the smart money is very likely to be in accumulation mode. If they are, they appear to be accumulating under favorable conditions.

A quick look at the 1-hour chart reveals that AMB/BTC is about to get an important golden cross with the 100 moving average crossing over the 200 moving average. On top of that, we can see bullish divergences on the daily chart, 12-hour chart, and 4-hour chart. These indicators tell us that Ambrosus is turning bullish.

The strategy is to buy as close to 0.000016 support as possible. As long as bulls stay above this level, Ambrosus will likely rally to our initial target of 0.000023. Take that out and the next target is 0.00003.

The process may take less than a month.

Daily Chart of Ambrosus/Bitcoin on Binance

As of this writing, the Ambrosus/Bitcoin pair is trading at 0.00001682 on Binance.

Summary of Strategy

Buy: As close to 0.000016 as possible.

Targets: 0.000023 and 0.00003.

Stop:0.0000156

 

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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3.8 stars on average, based on 288 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 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: Gifto

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Gifto (GTO/BTC) came off lows of 0.00000606 on December 11, 2018. At that point, the market was down by over 91% from the 2018 peak of 0.00007499. With such a huge drop, it is easy to assume that Gifto is deep in bear territory. However, a closer look at the daily chart shows that we may be looking at a market that’s transitioning from a down trend to a more sideways trend.

Technical analysis shows that GTO/BTC may have established a short-term bottom at 0.00000615. The market dropped to just below this level on November 20 and bulls immediately rejected lower prices. This led to a strong rally to 0.00000914 on December 5.

Bottom pickers used this rally to lock in quick gains. As expected, the market pulled back. Nevertheless, Gifto’s ability to stay above 0.00000615 support is bullish in the short-term. This price action has created a double bottom pattern on the lower time frames. If you look at other altcoins that have recently pumped, such as Waves (WAVES/BTC), Ambrosus (AMB/BTC) and Ripple (XRP/BTC), you will see that they also used the same double bottom pattern on the lower time frames to generate an immense rally.

The strategy is to buy as close to 0.00000615 as possible. As long as bulls stay above this level, Gifto is in a great position to pump to our target of 0.00000783. Take that out and the next target is 0.0000095.

The process may take less than a month.

Daily Chart of Gifto/Bitcoin on Binance

As of this writing, the Gifto/Bitcoin pair is trading at 0.00000644 on Binance.

Summary of Strategy

Buy: As close to 0.00000615 as possible.

Targets: 0.00000783 and 0.0000095

Stop:0.00000605

 

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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3.8 stars on average, based on 288 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 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: SelfKey

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We’ve been watching Selfkey (KEY/BTC) for some time now. It started to become interesting for us when bulls showed their hands on August 14, 2018. At that point, the market dropped to as low as 0.00000066. KEY/BTC generated a hammer candle with a long wick below the body, which indicated the rejection of lower prices. On the next day, August 15, Selfkey printed a large green candle that sent the market to as high as 0.00000112.

The price action told us that 0.0000007 is bull territory.

This happened again on September 12 when Selfkey touched 0.00000071. Bulls rejected lower prices and sparked a rally that saw the market climb as high as 0.00000154 on October 29. This is where bears showed their hand. They aggressively sold at these levels to drive the market down.

The price movement in the last few months has given us the confidence to enter the market.

Technical analysis shows that KEY/BTC is in sideways consolidation. Participants are accumulating positions as the market ranges between 0.0000007 and 0.00000116 with a midpoint at 0.00000093. With this range, we can easily buy the support and sell the resistance again and again until the market breaks out of range resistance.

The strategy is to buy as close to 0.00000067 as possible. We’ll buy below the range support because market makers may shake out bottom pickers. Ideally, what we want to see is a hammer candle and a retest of 0.0000007 support on the hourly chart. If we can get that, the market can easily rally to range midpoint of 0.00000093.

The process may take less than a month.

Daily Chart of Selfkey/Bitcoin on Binance


As of this writing, the Selfkey/Bitcoin pair is trading at 0.00000072 on Binance.

Summary of Strategy

Buy: As close to 0.00000067 as possible.

Targets: 0.00000093

Stop:0.00000065

 

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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3.8 stars on average, based on 288 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 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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