Is This a Good Time to Buy Bitcoin?

Bitcoin market cap

It is a difficult task to call a bottom when an asset class is in a downtrend. However, using technical analysis, we can at least try to get a rough idea about the levels that can offer a strong support. Please remember that when panic sets in the decline can easily overshoot on the downside. Therefore, traders should scale into the position instead of investing all the available money at once.

Key points

  1. A fall to the 200-day EMA has proven to be a good long-term buying opportunity in the past two years.
  2. Traders can buy 25% of the desired allocation around the $8900 levels and keep a stop loss of $7400.
  3. Averaging down is not a good trading practice. Hence, fresh positions should be avoided if the price breaks down and sustains below the 200-day EMA.

What is our track record in picking tops and bottoms?

Calling a top is a very difficult task. We tried to call a top in Bitcoin on two occasions. The first call on November 27 proved to be wrong. We had expected a dip of about 30% from the highs to about $7,000 but Bitcoin only dipped to $8595.95 levels on November 29 and that too only during intraday.

Thereafter, Bitcoin continued its incessant run and we again made a call of a top on December 08, when it was trading just above $16,000 levels. The virtual currency topped out at $19891.99 levels on December 17. This call proved to be very close to the top. Traders who sold following our call would be sitting pretty with enough money to invest at lower levels.

So, is Bitcoin a good buy after falling more than 50% in about a month and a half? Let’s see.

Where should traders start buying?

In end-2015, the price broke above the 200-day EMA. Since then, there have been five dips to the 200-day EMA, which have proven to be a good long-term buying opportunity.

Currently, the 200-day EMA is placed at 8898. We believe that a retest of this level is likely to attract long-term buyers once again. Traders should wait and watch for about 4-hours to see whether the level is holding or not. If the level holds, 25% of the desired allocation in Bitcoin should be done around $8900 levels. The SL for this purchase should be kept at $7400 levels.

Remaining positions can be added when the cryptocurrency confirms a bottom.

We have used a log scale to fit the chart within the scale.

What are the supports in the short-term?

The current pullback is close to the 78.6% retracement level of the latest leg of the rally. We believe that the zone between $8900 and $8600 will act as a strong support zone.

However, if the bears breakdown and sustain below the 200-day EMA for three days, it will indicate weakness. The next level on the downside that can offer some support is $7500 to $7800.

We don’t advise averaging down. Traders should hold all their purchases as long as Bitcoin remains below the 200-day EMA. Long positions should again be initiated once the cryptocurrency confirms a bottom.

Featured image courtesy of Shutterstock. 

Rakesh 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.