Since our last market analysis, bitcoin continued on its trend until reaching $780, which coincided with the 61.8% level on the Fibonacci retracement. This is often a level that can lead to deep pullbacks and the price went through a major correction once this area was hit.
Fundamentally, the correction was also fuelled by Bitfinex shutting its site down for maintenance and allowing traders to close out their positions for a 15 minute period. The markets immediately started dumping as traders rushed to close out their maxed out leveraged longs.
After a price drop of over $200, the markets had a typical bounce play that just so happen to coincide with Brexit. Some people were attributing the bounce to the Brexit event, yet seasoned traders know that bounce plays are a normal part of market behaviour.
The bitcoin price hit a lot of resistance at the $700 area and chopped around within a tight trading range until news of the Bitfinex hack broke out. The theft sent the markets into an immediate panic, creating a parabolic move to the downside.
A low of $465 was hit, as prior resistance turned into support. The dump was followed by another bounce play, hitting resistance at $600 and then consolidating within a $50 range for several weeks.
Last Saturday, bitcoin broke out of two different areas, one on a descending trendline and the other above $600 resistance.
Although bitcoin had a few major price corrections, the overall bull trend on the larger time frame remains intact. The breakout above $600 may have created enough momentum to at least test prior resistance areas around $670.
On the Chinese exchanges, 4000 CNY is equivalent to the $600 USD area. It’s possible that the price could chop around as some traders take profit, yet as long as $600/4000 CNY holds up as support, we may continue to trend upwards. A breakdown below those levels could squeeze longs and trigger another sell-off.
The initial breakout created a bull pennant formation, with a secondary move forming a smaller bull flag. These are often interpreted as continuation patterns on a trend, with the markets showing healthy retracement and consolidation at each level up.
Looking at the 1w Stochastic RSI, we can see the price crossing under 20, which indicates that the markets are oversold and may be getting primed for an shift towards increased buying pressure.
Our trading group tends to focus on trading quality over quantity. Rather than chasing every little move in the market, we patiently wait for and hunt trade set ups that tend to have higher probabilities. Bitcoin has enough liquidity to trade size to maximize returns on quality trades.
The action for us started on the breakout of $470 and $500. We scaled in a third time on the breakout of another bull pennant at $580 and rode profits until our first target of $650 was hit. Once the $650 target was met, we scaled out 50% of the position and let the rest ride with the trend.
During the first Bitfinex dump many of us gathered in the trading room to close out the entire position before the panic sell-off.
Once the market went parabolic to the downside, we convened in the trading room and had some live dip buys around $570 for the bounce play.
We stayed away from most of the chop and got faked out probing the market on a potential breakdown of $600. The second short on the breakdown of $600 was a partial success for those who weren’t trading on Bitifnex.
During the second massive dump we gathered in the room again and many of us bought the dip around $470 for a second bounce play.
Since that time, we’ve been predominantly trading altcoins and just recently scaled in on the breakout of $600. Our goal is to ride profits again if this turns into another real bull trend. Exit targets are kept private for the members area. We also have a tight risk management strategy in the event that we get faked out with some more chop.