We are going to be shorting bitcoin price increases
Updated
As much as we don't like to say it, we are on the bearish side of the fence when it comes to the price of bitcoin :-/.
The sharp sell-off seen two holy Sundays ago is what made us bearish. We have marked the sell-off with the black arrow on the above chart to make things nice and simple.
The real question is why did that make us bearish?
Here's the thing... The drop which took place resulted in the price of bitcoin failing to overcome several pivotal points.
Firstly, the price rose above the monthly 50 EMA but failed to close above showing rejections of values above this point.
Secondly, the price fell away from the weekly 200 EMA showing this level has once again acting as resistance.
Thirdly, although price did rise above its former high, it failed to close above on the daily chart
As seen in the daily chart, bitcoin spent much of the last week forming small bodied candles and consolidating between $3769 and $3902. The break below which took place yesterday adds more confirmation to our bearish bias.
So... What are we going to do? We still want to be smart about choosing your entry points as opposed to just randomly going short. This doesn't make much sense from a risk-reward standpoint and always runs the risk that the bulls come back to town.
What we are currently doing is looking to enter a short position at $3760. The reason we have chose this sweet point is $3769 acted as support several times last week and we would expect it to provide some resistance if price can increase to this level.
In terms of profit target, we believe the first trouble area is $3633 so we will be looking at a profit target above this at $3650.
In terms of a stop loss, if price breaks above $3769 and $3831 which we would both expect both to act as resistance, we are clearly wrong and have our stop loss set at $3850.
This gives this trade a risk to reward ratio of 1.22 meaning it needs to win at least 45% of the time to be a profitable trade. The main reasons to enter this trade are the bearish bias we have and the expected resistance levels.
Let me know in the comments if you have any thoughts or other opinions on the price prospects.
The sharp sell-off seen two holy Sundays ago is what made us bearish. We have marked the sell-off with the black arrow on the above chart to make things nice and simple.
The real question is why did that make us bearish?
Here's the thing... The drop which took place resulted in the price of bitcoin failing to overcome several pivotal points.
Firstly, the price rose above the monthly 50 EMA but failed to close above showing rejections of values above this point.
Secondly, the price fell away from the weekly 200 EMA showing this level has once again acting as resistance.
Thirdly, although price did rise above its former high, it failed to close above on the daily chart
As seen in the daily chart, bitcoin spent much of the last week forming small bodied candles and consolidating between $3769 and $3902. The break below which took place yesterday adds more confirmation to our bearish bias.
So... What are we going to do? We still want to be smart about choosing your entry points as opposed to just randomly going short. This doesn't make much sense from a risk-reward standpoint and always runs the risk that the bulls come back to town.
What we are currently doing is looking to enter a short position at $3760. The reason we have chose this sweet point is $3769 acted as support several times last week and we would expect it to provide some resistance if price can increase to this level.
In terms of profit target, we believe the first trouble area is $3633 so we will be looking at a profit target above this at $3650.
In terms of a stop loss, if price breaks above $3769 and $3831 which we would both expect both to act as resistance, we are clearly wrong and have our stop loss set at $3850.
This gives this trade a risk to reward ratio of 1.22 meaning it needs to win at least 45% of the time to be a profitable trade. The main reasons to enter this trade are the bearish bias we have and the expected resistance levels.
Let me know in the comments if you have any thoughts or other opinions on the price prospects.
Trade active
So the quick spike up in the last hourly candle filled our position. The spike blasted through where we expected resistance at $3769.
$3830 does seem to be providing some resistance as expected but the price did surpass this and come extremely close to where our stop loss was. Our stop loss was $3850 and price essentially came to $3849.50. This was likely a stop hunt and many shorts probably got their positions liquidated here.
This sure up lowers the odds of our trade being correct but we will be sticking with it until the price hits the profit target or the stop loss. Given that price blasted through $3769, it would be expected to act as support if the price drops back this point further weakening the odds of this trade working out.
Overall, the bias remains bearish. However, trading is a game of odds. Not every trade is going to work out but it is important the winners outsize the losers over the long run.
Will keep the trade updated here.
Note
It is also worth noting that litecoin surged an hour before bitcoin did.
Litecoin can often act as a leading indicator to the price performance in bitcoin.
If this was spotted while the short orders were still in, the orders should have been cancelled.
Trade closed: stop reached
$3830 held up for a while... Or else it was just an arbitrary line that we labeled resistance.
Nonetheless, it was broke above and the likely situation of the stop being reached became a reality.
There is a bearish divergence between price and RSI now forming on the 15-minute. However, a bearish divergence on its own is a poor indicator and more so when forming on a lower timeframe.
No more trades will be taken until tomorrow at least. Market conditions will be reassessed again tomorrow. Until then, be healthy, or as we say in Irish, Slán go fóill!
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