So yesterday we noted that the bitcoin price was weaving its way through an upwards sloping channel, and further, that we would use this channel to help us figure out our strategy as we headed into last night’s Asian session. In traditional technical analysis when looking at equities, forex etc., a channel can mean two things. The first, that the price of the asset in question is consolidating after a particular move (in this instance, to the upside) as speculators take profits off the table. In this case, we generally see a resumption of the overarching trend (again, in this instance, to the upside) once the long market participants have exited their positions. Second, that the momentum of the prior move has dried up, and the opposing buyers or sellers (in this case, the sellers) are piling into positions. In this situation, we will often see a reversal.
How do we know which is which? We use a breakout approach, with the levels that define the channel as our entry signals. If after a period of channel trading, post-upside run, the price of an asset breaks through channel resistance, we can assume it is scenario one and that there is further