Trade Recommendation: Bitcoin

Bitcoin (XBT/USD) is down by over 40% in less than two weeks. If you’re one of those who holds on for dear life (HODL), we imagine the last few weeks would have been extremely painful. However, now may not be the best time to capitulate. A savvy trader would start scaling in at these levels. If our analysis is correct, the largest and oldest cryptocurrency is due for a mighty bounce.

Technical analysis shows that XBT/USD is respecting the weekly support of $3,620. This weekly support is one of a kind. This is the price area where bulls staged the December 2017 parabolic run that saw the market climb to its all-time high of $19,660 on Kraken. A drop to this level tells us that all the gains and hype behind that previous run is now totally gone. This is a good thing as Bitcoin can start a new trend without the baggage of the previous mania.

Another thing that’s working for Bitcoin is that bears are extremely exhausted. The market has just completed the three drives down pattern. Over the last two weeks, Bitcoin generated two bearish flags that resulted in three big red candles (three drives down). During this move, the market had zero semblance of a pullback. This type of sharp decline is not sustainable.

Thus, we are seeing signs of extreme exhaustion. The price keeps going down but the volume has been significantly declining. More importantly, the daily RSI is in a historic oversold territory. On top of that, the weekly RSI is flashing oversold readings. These indicators tell us that Bitcoin is due for a bounce if not a total reversal.

The strategy is to buy as close to $3,620 support as possible. If the weekly support is held, then we expect the market to bounce to our initial target of $4,740. Take that out and we may see Bitcoin retest resistance of $6,000.

The process may take a month.

Daily Chart of Bitcoin/US Dollar on Kraken

As of this writing, the Bitcoin/US Dollar pair is trading at $3,729.10 on Kraken.

Summary of Strategy

Buy: As close to $3,620 as possible.

Target: $4,740 and then $6,000.

Stop: $3,500

 

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.