Chart of the day: How to trade Bitcoin amid mixed technical signals

Investors must have been dizzy from the sharp fluctuations of bitcoin since November last year. After this leading cryptocurrency by market capitalization flew “to the moon”, reaching a record high of $68,925 per token on November 10, it immediately turned down and lost 61.4% of its value, falling to $26,600 by May 12.

During this period of time, since April 4, bitcoin has been declining for eight weeks in a row — this is the longest series of falls in the history of the cryptocurrency. Now BTC/USD is growing powerfully, rushing towards the $31,500 level and having chances to finish in the black for the second week in a row.

Such dynamics leads some market participants to think: what if bitcoin has already formed a bottom and is now starting another upward movement? We also found growth potential on the chart.

BTC/USD — weekly timeframe BTC/USD — weekly timeframe

The current dynamics on the weekly timeframe confirms the “inverted hammer” pattern formed on the weekly timeframe last week. Much lower than the intra-week high, the closing level of last week may reflect short positions.

The recent rally, in theory, means that traders with short positions are losing money, which can trigger a short-squeeze, which will push prices up. In addition to this, the rate of change (the momentum indicator, which is more sensitive than the relative strength index, or RSI) has demonstrated a positive divergence, which means that the momentum is increasing despite the price decline.

However, we are more concerned about the price falling out of the growing channel from the maximum of March 2021 after the formation of the “inverted head and shoulders” figure. Moreover, it may turn out that the current growth is nothing more than profit—taking on continuous short positions.

BTC/USD – daily timeframe BTC/USD – daily timeframe

The daily bitcoin timeframe may be forming a “rising flag” pattern, which is “bearish” after a 33.5% collapse in just eight sessions from May 4 to a minimum of May 12, including sales that lasted five days in a row.

The flag has been formed on the very “neck line” of the huge “double top” pattern since the maximum of April 2021, which increases its technical potential. In addition to this, bitcoin is trading within a falling channel from a record high on November 10, which serves as an additional argument in favor of a “bearish” scenario.

And yet, we can only talk about the accomplished formation of the flag when it breaks down. In addition, declaring a flag for the fourth week of pattern formation is probably too much, since flag formation usually takes from one to three weeks. Therefore, cautious traders should wait for a confident breakdown.

Trading Strategies

Conservative traders should wait for the breakdown down from the flag and the double top, below $ 28,000, and then the reverse movement, in which at least the “neck line” of the top will be tested for strength, and better — the “neck line” of the flag located above.

Moderate traders should wait for the same breakdown down and corrective rally for a more optimal entry point and confirmation.

Aggressive traders can open a short position now, provided that they accept the increased risk associated with a relatively high expected return when acting ahead of the market. The main thing is the sober management of funds. Below we give a standard example.

If you learn to take into account your time horizon, budget and temperament in your trading plan, your chances of success will steadily increase as you continue to trade.

Example of an aggressive short position

Admission: $32,500

Stop Loss: $33,000

Risk: $500

Target: $30,000

Profit: $2500

Risk-to-profit ratio: 1:5