The technical setups posted below use simple trend detection, support and resistance, channels, pattern and candle analysis. We aim for high-probability trade setups on BTCUSD and use very few indicators. All charts use BNC’s Bitcoin Liquid Index for maximum accuracy.
The timeframe for trades is 1 to 7 days, so we’ll use 4h candlesticks. Bitcoin is best traded as a purely speculative commodity on 4h+ timeframes.
This section is based on internal (anonymized) Whaleclub trading data and is published exclusively on BNC.
Current Active Long vs Short Volume Ratio: 3.83:1
Average Active Long vs Short Volume Ratio: 2.5:1
We still observe an excess in active long volume relative to the average. Market players are relatively bullish, but much less so than last week where our ratio was above 5:1. As price has been range bound over the past few days, impatient longs who were expecting a quick jump in price were left disappointed, and exit their positions.
The average weighted long entry price is $458.20, which means that on average, current active longs are about even (not losing but not profitable either). Players who bought the $465-$470 area have exited their positions, with the expectation of further downside or a better buying opportunity, reducing the average long entry price.
Generally, the week has been calm and market dynamics are neutralizing. In the past, this has been a leading indicator of volatility: as the range zone becomes tighter, breakouts (and trend sparks) become more likely.
Macro Key Points
This section is an overview of news headlines or events that may affect BTCUSD.
It was a relatively slow week for bitcoin in the media and there were no significant catalysts.
The bitcoin block reward halving is estimated to occur on July 10, 2016, in about 10 weeks. The supply will halve – and assuming demand remains the same, the post-halving value per bitcoin is over $915. Extrapolating this based on the current market price, the present value of one bitcoin is around $230 – an attractive entry price.
4h+ Timeframe Setup
Since the recent strong breakout and subsequent pullback, bitcoin price has been ranging between $450 and $460. Let’s review the general market setup on the daily.
Price is holding strong above our pennant breakout and market inflection point. Since then, it has been ranging between $440 and $465 and shows no sign of breaking down. Within this range, it has failed to make new lows, signaling that the bears are unable to bring price down and take over control of the trend.
It’s all part of a larger consolidation area that formed a couple of months back with $440 as strong historical support and the $465-$470 area as strong historical resistance. We observe many touches of this consolidation zone over time, indicating its strength and reliability.
We also notice that break-downs and break-ins of this zone are relatively aggressive. The January break-down resulted in a 30% drop in price.
So we want to keep an eye on this zone. We can trade the zigzags inside the zone or the break-outs or break-downs above or below it, which can be much more profitable.
Let’s switch to the 4h timeframe to dig a little deeper. Our daily trend lines, support, and resistance levels are preserved.
Price is flirting with the $460 resistance line and has been zigzagging around the consolidation zone we defined earlier.
But this is not just random zigzagging. Since touching $440, no lower lows were made and the price pumps have been more aggressive than the dumps. This usually signals a buildup of pressure that often results in a breakout or a breakdown above or below the nearest S/R levels.
So, how do we know when those breakouts or breakdowns occur? Overlay diagonal trendlines and trade when price breaks either one of those trends (yellow lines above).
In technical talk, this is called a pennant breakout. The lower lows price have painted an upwards trend that, if broken, signals a weakening in bull power and a possible “passing over of the torch” from the bulls to the bears. Or to put it more simply, a trend reversal.
However, if price breaks up above the trend formed by our highs, this signals an increase in buy pressure — a doubling down of bullish confidence. The bulls hold onto and run away with the torch, resulting in trend continuation.
Below we chart out these trade ideas.
This is trend continuation as a result of a bullish breakout above the pennant. After hitting swing high, price pulls back to retest the bull trend, before late buyers come in to buoy it up and spark a solid upwards trend targeting $475 and beyond.
The opposite scenario is a bearish breakdown. Symmetrical in nature to the scenario described above, this idea plays out through three measured market moves that successively retouch our horizontal and diagonal support and resistance levels before breaking down into the low $400s.
We deem this scenario less likely given that long-short positions have stabilized (the risk of a long squeeze has considerably gone down since last week, most likely as a result of the $470 – $460 price dump from a few days ago). On a macro-level, the halving event is approaching quickly and given that context, market players will be reticent to let go of their bitcoins.
Disclaimer: The information presented in this article is general information only. Information provided on, and available from, this website does not constitute any investment recommendation.