Bitcoin (BTC/USD) has been on a freefall since July 24, 2018 when its dead cat bounce came to an abrupt end at a price level of $8,496.96. The “smart money” used the rally to dump positions. Even support of $7,400 could not halt the skid. By August 14, BTC was trading below $6,000 and gloom and doom forecasts of a drop to $4,000 once again dominated the conversation.
Just as the calls to short the largest cryptocurrency were becoming louder, the market rallied to $6,628.50 on August 15, obliterating many short positions in the process. It’s not easy to trade Bitcoin, but if you look closer, you can see that there’s a method to the madness.
Technical analysis show that BTC/USD is about to break out of an inverse head and shoulders pattern on the hourly chart. This is the same pattern that Bitcoin used to spark a rally on July 18, 2018. If you’re looking for a reversal, this pattern should be your primary candidate.
The strategy is to buy the breakout at $6,600 as long as the market generates volume of 500 Bitcoin units on the hourly chart. So far, the $6,600 resistance is proving to be one tough nut to crack. Bitcoin needs heavy volume to help push the price above the resistance.
Once BTC/USD takes out $6.600, it can quickly climb to our target of $7,400. Sell immediately. This might be another pump and dump rally.
The process may take less than a month.
Hourly Chart of Bitcoin/US Dollar on Bitstamp
As of this writing, the BTC/USD pair is trading at $6,351.01 on Bitstamp.
Summary of Strategy
Buy: Breakout at $6,600 with volume of 500 BTC.
Target: $7,400
Stop: $6,500 after the breakout.
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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3.6 stars on average, based on 224 rated postsKiril is a financial professional with 4+ 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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