Above: Bitcoin (BTCUSD)
The above image is Bitcoin’s 1-hour chart. The triangle formation is a pattern known as a pennant – in this case, a bullish pennant. Bullish pennants are coming continuation patterns that indicate another move higher is likely. However, this is not always the case. But we could also consider this pattern to be a rising wedge, which is one of the most potent bearish patterns of all chart patterns. Rising wedge patterns have a high positive expectancy rate of turning into profitable trades. Bitcoin is currently (1900 EST, February 2nd, 2021) trading at47,746 and just above the lower trendline. You’ll also observe a high volume node (horizontal volume bars on the right side of the image) that ends at 46,406. I like the idea of a short entry at 46,000 because it fulfills two critical short criteria. First, we would see a confirmation of a break below the rising wedge/triangle. Second, we would see price drop below the high volume node. When price breaks below a high volume node, the behavior we should observe is a swift move to the next high volume node. For Bitcoin, the next high volume node is a reasonable distance lower near 37,500.
Sell Stop @ 46,000
Profit Target @ 38,000
While the short setup here looks favorable, I believe we need to be mindful and extremely observant of Bitcoin’s market. With the entrance of Tesla, we could see a recent change in Bitcoin’s overall ‘normal’ price action behavior. Bitcoin (and cryptocurrencies in general) is still a very new asset class that has yet to gain broad acceptance by traditional, institutional money. Tesla’s involvement may very well change that. But we need to be very, very observant. Why? Because private equity funds and even publically traded banks will begin to build positions without making any significant announcements – this is especially true for private equity groups. As more and more prominent players enter the game, we should anticipate Bitcoin’s retracements’ size to decrease. This has more to do with more liquidity and participation in the market. We also don’t know how many of these new players will be during the 24 hours/365-day environment that Bitcoin trades in. We will need to watch exactly when, timewise, Bitcoin makes its biggest intraday moves. Professional money will want to depress prices during illiquid times of the day, much like they do in other markets like stocks, futures, and commodities. Identifying when this occurs will give us a considerable edge and follow what the market makers are doing. It will allow us to trade on the side of the ‘money’ ‘and help ensure we are continually trading in the right direction and picking up additional Bitcoin at the best value we can.
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