Hey traders,
A major question I’m asking myself today, as a trader, is:
- Is the Bitcoin market experiencing a deep correction now and a strong upward trend is going to continue? or
- Has the Bitcoin market begun the trend reversal downwards?
The answer to this question is important and defines the trading strategy that needs to be applied to generate profit in the current market.
Below is my analysis of the Bitcoin price trend in the format of a short Q&A session covering the most important questions traders are asking today.
So here is my view of the Bitcoin market today
First of all, it’s important to recognize that either of the two scenarios I’ve mentioned is possible. We shouldn’t rule out the possibility of trend reversal downwards and need to be prepared to limit risks on long positions and to take advantage of the falling market.
Based on the evidence I've got both from the fundamental analysis of the Bitcoin network and technical analysis of the Bitcoin price chart, I conclude that the first scenario - the continuation of a strong trend upwards - has a much higher probability.
As a technical analyst, I see that the current decline of the Bitcoin market reflects a short-term retracement within the bounds of the long-term trend upwards.
Why did this correction happen in the first place?
Nobody knows the exact fundamental catalysts that triggered this 10% sell-off. However, technically, this correction should have been anticipated.
Think about it this way.
In May 2019, Bitcoin’s price appreciated by 70% (at its peak at $9,100). This is equivalent to a 58,000% return, if annualized.
Undoubtedly, this return is unsustainably high and cannot be found in any other asset class / financial investment in the world.
In addition, technical analysis signaled that the market price had deviated significantly from its mean value. For example, we can see on the daily chart that, on May 30, $9,000 was more than 2 standard deviations higher than the mean value, as measured by the Bollinger Bands indicator. Statistically, such deviation means that it is highly probable that the price will adjust downwards, closer towards the mean value.
What does this correction tell us about the long-term trend?
Obviously, this exponential growth cannot be sustained over the long-term, unless it’s backed by the commensurately exponential growth in fundamental variables of the Bitcoin network (which is not the case now). So, a “healthy correction” downwards is reasonable.
Moreover, this correction is necessary to create the power and momentum for the next strong bull run.
What’s changed from the previous forecast?
I moved the stop-loss order below, to $7,400. The $7,400 price reflects more accurately the nearest significant support level and is closer towards the lower line of the Bollinger Bands indicator on the daily chart. The second argument means that $7,400 is two standard deviations lower than the current mean price, and, statistically, it’s unlikely that the $7,400 will be triggered ASSUMING the upward trend continues.
So, what’s the actual recommendation?
My medium-term recommendation for BTC/USD remains “Buy” with the price target at $9,500 and stop-loss at $7,400.
Presuming the long-term trend continues upwards, the price range from 7,500 to 8,000 provides an excellent opportunity to buy into Bitcoin cheaply.
I admit that such a strong correction downwards wasn’t anticipated by anybody, including myself. We know how difficult it is to accurately time the market entry and exit points.
Fundamentally, Bitcoin is becoming an increasingly stronger cryptocurrency. In fact, both unique addresses used and daily confirmed transactions have been growing consistently over the past year. Obviously, the economics behind this positive trend is strongly associated with an increase in demand for Bitcoin . Increased demand leads to an increase in the Bitcoin market price.
My forecast is still strong upwards and I’m long on BTC/USD.
If I’m a long-term investor, what strategy would be the best for me on this risky market?
High volatility (and risk) is a good factor for this market because it creates excellent opportunities for short-term profits. However, for long-term investors, high volatility is associated with uncertainty and may become a deterring factor.
So, I recommend long-term investors to use a modified investing strategy for Bitcoin , which would include a moderate amount of leverage (2-3x) and position averaging to decrease the risk of high volatility and possible price drawdowns.
Today the following signal is active:
- Buy Bitcoin in at $7,800
- Stop-Loss: $7,400 - the next significant support level
- Take-Profit: $9,500 - the next significant resistance level
- Forecasted P&L: +$17,000 or +217%, calculated per 1 Lot with 10x leverage
- Risk/Reward Ratio: 4. 25x
If you agree then Like this post! This will be the best feedback and encouragement for me!
To your trading success,
Monfex
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