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Chart Of The Day: As It Tumbles, There's Reason To Grow More Bullish On Bitcoin

By Investing.com (Pinchas Cohen/Investing.com)CryptocurrencyJan 11, 2021 09:34AM ET
www.investing.com/analysis/chart-of-the-day-as-it-tumbles-theres-reason-to-grow-more-bullish-on-bitcoin-200555546
Chart Of The Day: As It Tumbles, There's Reason To Grow More Bullish On Bitcoin
By Investing.com (Pinchas Cohen/Investing.com)   |  Jan 11, 2021 09:34AM ET
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After spending the weekend trading above the $40,000 level, Bitcoin is lower today, at time of writing around $35.1K. That's a drop of almost 14% in one day, a loss of almost 18% over the past two days.

This steep tumble has generated such headlines as “Two-Day Bitcoin Plunge Shakes Faith in Cryptocurrency Boom” and “Bitcoin's Wild Weekends Turn Efficient Market Theory Inside Out.” We can't vouch for shifting investor sentiment on the digital asset, nor do we have any idea what the cryptocurrency could be worth a year from now. But we do know it's becoming increasingly more closely watched.

JP Morgan might be correct in their call that the token will surge to $146,000 in the long-term, competing with gold as an 'alternative' currency. On the other hand, as Bank of America asserts this Bitcoin rally may just be the “mother of all bubbles.”

From the outset we've been uneasy with the entire concept of digital currency. However, it appears that this market disregards physical value. So Airbnb (NASDAQ:ABNB), which has no physical real estate holdings, was worth more than the three largest hotel operators after its IPO, albeit without assets. Even though it’s just a website that gets booking commissions.

And electric carmaker Tesla (NASDAQ:TSLA) has a market cap that's higher than the seven largest conventional carmakers combined, though it’s expected to sell fewer than 1% of total global vehicles. Similarly, Bitcoin is worth over $34,000, after a decline that has triggered some panic, while physical gold costs $1,847.

Still, though we're bemused by any asset that doesn't have a physical component, we won’t fight the trend. And since we’re going with the trend, it's clearly up. After Bitcoin's value doubled in three weeks, why would anyone be surprised by profit-taking? Plus, Bitcoin has always had a history of volatile price swings. After all, only a few weeks ago it was valued at $20,000 and that seemed breathtaking at the time.

Of course, a very large move lower could scare investors into a stampede. But our perspective has been, when everyone was gung ho about Bitcoin, we were suspicious of complacency. So, now that panic-inducing headlines are scaring the crowd, we feel more comfortable assuming a managed risk in favor of the cryptocurrency.

Here's what the balance of supply and demand currently looks like:

BTC/USD Daily
BTC/USD Daily

Bitcoin has been continuously accelerating the pace of its advance. So now, falling is not a bad thing.

Indeed, Bitcoin enthusiasts should want the cryptocurrency to decline, so that anyone who wants to cash out can do so and allow others to pick up the mantle.

It’s more dangerous when an asset spikes up, because the more it gains the greater the hazard of a correction, as more people attempt to lock in profits.

Although we don’t tend to use Fibonacci retracements, we found it noteworthy that the price found support at 0.382, the minimum retracement level.

Note, the 50 DMA is moving up toward the current rising trend line, while the 100 DMA rises to support the second uptrend line, at $22,200, and finally the 200 DMA retraced the shallowest uptrend line on this chart, at $14,000.

The sharper the dip to these levels, the better the risk-reward ratio, though the price may not get that far. That’s the trade-off between risk and reward.

Trading Strategies

Conservative traders would wait for the price to create a base of support and trade off that.

Moderate traders may risk a long position if the price bounces off the uptrend line.

Aggressive traders might trade off the 0.382 Fibonacci rebound, provided they understand and accept the risks and are accordingly committed to a trade plan.

Here’s an example:

Trade Sample – Long Position Setup

  • Entry: $34,700
  • Stop-Loss: $33,700
  • Risk: $1,000
  • Target: $44,700
  • Reward: $10,000
  • Risk:Reward Ratio: 1:10
Chart Of The Day: As It Tumbles, There's Reason To Grow More Bullish On Bitcoin
 

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Chart Of The Day: As It Tumbles, There's Reason To Grow More Bullish On Bitcoin

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Comments (6)
Beginner Trader
Beginner Trader Jan 11, 2021 9:20PM ET
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Pinchas, thanks for the great analysis and keep up the great work! I have learned so much from you reading your Chart of the Day posts!
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 9:20PM ET
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Thanks, Beginner. Really appreciate the feedback! I hope I will keep providing you with material that helps you grow! Happy Trading!
Barry Meads
Barry Meads Jan 11, 2021 2:41PM ET
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Pinchas, great article, as ever, Many thanks. You're article got me thinking... 1. Generally, when facing a potential stampede (appreciate it's impossible to catch a falling knife and predict a bottom), where do you think logical resistance points would be? Looking at BTC in this chart, won't the rising trend line be a better entry point for e.g.? 2. But then, why would even a trend line be more valid than a DMA? so would the 50 DMA not be a more logical resistance level? As we've seen in the past, trend lines an DMAs have historically provided resistance/support levels. So when facing price action heading towards them, which do you favour? My question essentially is to do with resistance levels: Which do you think are most valid and why? And when seeing a rally up or down, where do you think most logical resistance levels lie?  Any pointers to literature around them will also be greatly appreciated - I'd like to find out more about them. Thanks!
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 2:41PM ET
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Barry, first, thanks for your kind sentiment. The primary thing to remember is that technical analysis is not magic. It's nothing more than an attempt to gauge the current market narrative, be that speculation alone, or solid fundamentals, and it's impossible to separate these too. Naturally, the more knowledge, intuition and luck one has the better he could get at it, but it's an ongoing process BECAUSE IT KEEPS CHANGING. Given that technical analysis is the statistical study of human behavior relating to a particular asset, there are no hard and true rules. You need to put in the time and gain the experience with each asset, market in its time. Sure, history tends to repeat itself but not always and not exactly in the same way. That's why trading is not about knowing the future but rather managing your luck. --->
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 2:41PM ET
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On point, why would a MA or a trend line have any predictive powers, if not because of their self-fulfilling prophecies? Therefore, study a particular's asset to determine what has been more true for it, and be prepared to change your mind as it develops. In the final analysis, I prefer a horizonal support and resistance, because it's constant. That means that more people and across different disciplines remember that price and have a dog in that fight. As to books, I don't know what you read, but I am a big believer to first get the basics and really understand them, before attempting any of the fancy stuff. Therefore, the easier the better. Technical Analysis of the Financial Markets by John Murphy was one of my favorite early ones. Happy trading!
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 2:41PM ET
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Finally, technical analysis attempts to gauge the supply and demand and therefore doesn't act in a vacuum. If you find additional technical supports/resistance and indicators confirming an uptrend line or a MA, the odds increase that it's more representative.
Barry Meads
Barry Meads Jan 11, 2021 2:41PM ET
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Pinchas Cohen  Thank you v v much for the detailed reply. It has really helped. And thanks for the recommendation on the book!
peter neal
peter neal Jan 11, 2021 2:25PM ET
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The Fed isn't backing Bitcoin like other assets your on your own. Free market.
Aaron Chaff
AayAayRon Jan 11, 2021 2:25PM ET
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Are you suggesting this is a bad thing?
Jan Skilbrei
Jan Skilbrei Jan 11, 2021 1:45PM ET
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look at the monthly, when it falls (earlier), four candles prog essive increases in size, the last on the longest, then retrace begun. This time also?
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 1:45PM ET
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No, statistical results require a high event count. This is not representative.
Scott Durso
ISOBeerMoney123 Jan 11, 2021 12:24PM ET
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Nice article. I'm bullish, (holdings in crypto mining), it'll be interesting to establish some resistance lines and try to determine if we can keep a pace of gain throughout the year. Very interesting times, can't imagine using this as a inflation hedge.
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 12:24PM ET
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Thanks. Why can't you imagine using this as an inflation hedge?
Barry Meads
Barry Meads Jan 11, 2021 12:24PM ET
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Pinchas Cohen  I can't speak for the OP, but thinking about an answer to your question, perhaps because it's too unstable. For e.g. when it fell from it's previous high of around 20k USD, it fell to 3.5k USD, and didn't really bring any inflation beating gains till more than a year later. If it falls from this level again, either getting gains would take too long to be a good investment or there would be better options elsewhere. Also, a fall to a similar level from this price would be possibly too much to recover within any timeframe for rational calculations!
JP Serbera
JP Serbera Jan 11, 2021 11:50AM ET
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super trade indeed. Busted in 5 minutes
Pinchas Cohen
Pinchas Cohen Jan 11, 2021 11:50AM ET
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You don't understand trading.
JP Serbera
JP Serbera Jan 11, 2021 11:50AM ET
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you neither, otherwise you won't be wasting your time writing poor advices.
 
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