Trade Recommendation: Bitcoin

Bitcoin lost all bullishness when it generated a lower high of 17,234.99 on January 6, 2018. Things went from bad to worse when the cryptocurrency broke support at 12,000 on January 16. The break triggered the toppish head and shoulders pattern, and confirmed bitcoin’s downtrend. From that point on, the cryptocurrency has been posting a series of lower lows and lower highs.

Yesterday, bitcoin broke support at 7,000 on heavy volume of 46,500 bitcoins on Bitstamp. Breach of this level indicates that the market has yet to find its bottom. Bitcoin went as low as 5,920.72 today, February 6, before bouncing. However, the recovery may just be a temporary relief in selling.

Technical analysis show that the head and shoulders pattern that was triggered when bitcoin broke 12,000 has a target of 4,750. Interestingly, bitcoin’s next firm support is at that level. At that price level, the cryptocurrency would have lost 75% of its value from its 19,250 top. Many participants would find bitcoin depressing at that value, and that should be a very good signal that the downtrend is over.

The strategy is to wait for the market to drop to 4,300 – 4,750 before placing buy orders. Should that level prove to be a reliable support, bitcoin will most likely bounce to 7,000. The entire process can take a month given the cryptocurrency’s volatility.

Daily Chart of Bitcoin/USD on Bitstamp


As of this writing, Bitcoin/USD is trading at 7150 on Bitstamp.

 

 

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.

Kiril 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.