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Is Ethereum Ready to Play Catch Up With Bitcoin?

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In mid-June of this year, the difference between the market capitalization of bitcoin and Ethereum had narrowed down to less than $8 billion. This had many market participants excited. They expected Ethereum to dethrone bitcoin as the leader, a move popularly termed as flippening.

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Key observations

  1. Ethereum has hugely underperformed bitcoin
  2. The chart pattern suggests that Ethereum is likely to play catch up in the next few months
  3. Stay on the long side of Ethereum to benefit from the bullish setup

However, fast forward five months and the difference in the market capitalization of the top two cryptocurrencies has increased to about $96 billion. This shows that while bitcoin has raced ahead in the past few months, Ethereum has hugely lagged behind.

However, is the underperformance about to end?

The chart pattern shows that Ethereum is likely to embark on a rally of its own that can carry it to $645 to $670 levels in the next few months. Let’s see how we arrived at these levels.

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Ethereum opened trading at $8.16 on January 1, 2017. It started its rally in March and by June 12, it reached a high of $420, an astronomical rally of about 5047%. Thereafter, it entered a period of consolidation, digesting the gains.

On the charts, Ethereum has formed a large symmetrical triangle, which usually acts as a continuation pattern. The breakout is generally in the direction of the long-term trend, or the trend that was prevailing before the pattern formed. In this case, the sharp move from January to June confirms that the cryptocurrency was in an uptrend before forming the triangle.

However, this is not a fool proof trade because sometimes the symmetrical triangle acts as a reversal pattern. Therefore, the best way to play this trade is to wait for a breakout of the triangle before initiating any trade.

Where can we take an entry?

Currently, the resistance line of the triangle is at about $378 levels, a level close to today’s intraday highs. The bears are likely to strongly defend this level. However, if the bulls breakout of $378 and manage to close above the resistance line, the trade on the long side will set up.

Different traders use different methods to confirm whether the breakout is valid or not. Some wait until price moves 3% above the breakout level, others wait for three consecutive closes above the resistance level.

However, we have observed that the best breakouts never look back, hence, waiting for three days may lead to a missed opportunity. Therefore, we can wait for a closing above the resistance line of the triangle and initiate the long positions on the following day.

The breakout can face resistance at $400 and $420. However, we expect the virtual currency to scale both these resistances and rally towards its pattern target zone of $645 to $670.

Notwithstanding, even the most reliable patterns can fail. Therefore, our stop loss will be kept at $340. We don’t want to hang on to the trade if it falls back into the triangle. We shall raise our stops to breakeven as soon as Ethereum breaks out to new lifetime highs. From thereon, we shall trail the stops higher to protect our paper profits.

Note

The chart pattern suggests a resumption of the long-term uptrend in Ethereum. However, this will not get confirmed until the cryptocurrency breaks out and sustains above $380. Therefore, please initiate positions only on a breakout and close above the triangle. Entering presumptive trades may result in losses.

Featured image courtesy of Shutterstock. 

 

 

 

 

 

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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5 Comments

5 Comments

  1. Chris G

    November 19, 2017 at 10:41 pm

    $380, which is my short-term profit target … ack!

    • Rakesh Upadhyay

      November 20, 2017 at 3:49 am

      Hello Chris,

      $380 is a good short-term profit target. What I would suggest you do is, book 50% profits at these levels and raise the stops on the remaining positions and watch for a day or two. If price breaks out and sustains the $380 levels, then I expect ethereum to pick up momentum.

      Alternative strategy can be that you book your profits in the region of $375 and $380, and then wait for a confirmed breakout above the triangle before initiating long positions again.

      Whatever strategy suits you, go with it.

      With warm regards
      Rakesh Upadhyay

      • Chris G

        November 20, 2017 at 4:07 pm

        thanks Rakesh! Your advice is well taken. That was more or less my initial strategy, to take 50% at $380 and trace the stops up. Like you said, we’ll see if it sustains above $380.

  2. cfussy25

    November 20, 2017 at 8:12 am

    Being that cryptos trade 24 hours a day how do you figure when a price “closes” above a certain level?

    • Rakesh Upadhyay

      November 20, 2017 at 8:24 am

      Hello cfussy25,

      You are correct, cryptos trade for 24 hours. However, each day is depicted via one candlestick on the chart.

      So, we wait for the candlestick to breakout and close above the resistance. This is what we mean by the price closing above a certain level.

      Hope this clears your doubt. If not, please feel free to ask.

      With warm regards
      Rakesh Upadhyay

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Cryptocurrencies

Trade Recommendation: Litecoin

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In spite of the market looks too overbought and it can start correction movement at any time, Bitcoin shows that even such markets can continue make new highs. This trading idea is based on a breakout above the resistance level with further upward movement. The price bounces from Tenkan and Kijun lines. DMI shows that the bulls become stronger and it supports the buy signal. Pending orders can be placed at 330.00 level with stop orders below the local swing low at 278.00 level. Profit targets are 400.00 and 450.00 levels. This is a high risk trade. The market did not correct the previous good upward movement. It means that Litecoin can drop and we must be ready to such falling. Don’t invest much volume in this trade and use stop orders. If you don’t use leverage, trading volume for this trade is up to 5% from your deposit.

Market: LTCUSDT
Buy: 330.00
Stop: 278.00
Profit Targets: 400.00 and 450.00

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The trading signal is based on Poloniex chart.
Disclaimer: The analyst are some invested in Litecoin.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Cryptocurrencies

Trade Recommendation: IOTA

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If the price bounces from the support zone formed by SMA100 and 3.00 level, we should expect for continuation of the uptrend. When the price breaks the downtrend line, we’ll get a buy signal and an additional confirmation of further upward movement. Pending orders for buy can be placed above the local swing high at 4.10 level with stop at 3.30 level. Profit targets are 5.00 and 8.00 levels. If you don’t use leverage, trading volume for this trade is up to 10% from your deposit.

Market: IOTUSDT
Buy: 4.10
Stop: 3.30
Profit Targets: 5.00 and 8.00

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The trading signal is based on Bitfinex chart.
Disclaimer: The analyst does not have investments in IOTA.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Cryptocurrencies

Trade Recommendation: Ethereum

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The market is overbought and we have to expect for a correction. The price can bounce from the resistance zone formed by the downtrend line and 700.00 resistance level and continue downward movement. But we also know that sometimes crypto markets move out of logic. We must be ready to catch a new strong upward movement to new highs. Is it possible? I think yes and Bitcoin confirms it. We can use a breakout above the resistance zone for opening long trades. Entry level is 708.00 with stop orders at 670.00 level. Profit targets should be 750.00 and 800.00 levels. This is high risk trade and the best entry levels are much lower. Don’t invest too much in this market now. It’s better to wait for a good correction and buy based on solid reversal signals. If you don’t use leverage, trading volume for this trade is up to 5% from your deposit.

Market: ETHUSDT
Buy: 708.00
Stop: 670.00
Profit Targets: 750.00 and 800.00

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The trading signal is based on Poloniex chart.
Disclaimer: The analyst are some invested in Ethereum.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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