Updated: Jan 28
3D Bitcoin created by Jordan Daushvili
Thanks for taking the time to read today's blog post in this series of posts we will identify patterns and setups in the Cryptocurrency space. This will help you with short term trading and long term investing in Crypto. Please be sure to read the disclaimer on our site before moving forward, comment below and follow us on Instagram!
We've launched our Cryptocurrency Shirts and Hoodies recently, so now I am sure you're asking what should be doing with our Crypto!?!?
Last year I was very bullish on Bitcoin and during the peak of COVID in March I called the day we bottomed "the Munger bottom." Munger has spoken very publicly against #Bitcoin calling it 'noxious poison.'
However, describing something with absurd names gives no real value than seeking attention for something one does not understand.
The uses for Cryptocurrency and especially Bitcoin are applicable on a number of use cases and are ushering in Internet 3.0. Even Janet Yellen in her recent prepared remarks acknowledged it importance with the following statement "I think it is important we consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system."
She also talked about her concerns over Crypto and the large number of illicit transactions associated with them. This is simply not true! Blockchain analytics firm Chainalysis found that crypto-related crime dropped to 0.34% of total transaction volume in 2020, down from 2.1% in 2019.
The cost of transactions for credit cards is expensive for the majority of small businesses and that is being reflected by these businesses charging extra fees when you use major credit cards today.
Imagine if these small businesses started using Cryptocurrency as their method of payment? Transaction fees would be reduced. So today we are announcing that we are going to start accepting Cryptocurrency as payments for all our goods!
Now, on to some charts!
First, taking a look at the largest Cryptocurrency by size, #Bitcoin, we had been very bullish looking for a target of $36,000 which was met and exceeded by $4k!! So after our target is met how did we know when to sell?
This a great question anyone should be asking themselves to ensure we lock in gains and maybe even start a hedge if we want to protect long term profits if we have longer term targets. On January 10th, 2021 I tweeted from @essex_trading (where all of our charts will be posted) we saw another potential bullish setup in Bitcoin [see Figure 1.1 below].
But what happened? We didn't break to the upside, instead we broke down which has marked a temporary top in Bitcoin recently. A very important lesson in trading is that when a pattern setups and breaks in the opposite of the direction of that intended setup, whether bullish or bearish it tends to do so rapidly.
So we would set our stop below $40,257 the previous day high and lock in or hedge depending on our objective. So now were interested in getting back into Bitcoin after we have taken a 30% haircut, this is where the Fibonacci pattern comes back into play. Our new levels of support are between $29,000 and $27,247. It's important that we be flexible with our levels especially if technicals confirm to take a position with a good risk/reward entry.
We don't have to look to buy the bottom, instead we want to see how #bitcoin reacts against this level. We are creating a #bullish flag pattern to confirm our bullish thesis on Bitcoin we would need to hold the bottom part of the flag pattern (as seen in Figure 1.2). If we hold this would help us initiate a position with clear risk/reward. To confirm this we need to break out of that pattern.
While Bitcoin has led the way, Ethereum hasn't been far behind and is another Cryptocurrency we recently reviewed with a beautiful pattern, now that we have hit all time highs and it is the Cryptocurrency showing the highest relative strength we continue to want to be long above $1,432 with a target of $2,314 (see Figure 1.3). Like Bitcoin we want to make sure we are being nimble and always have a plan in place for our position, so if we are long already and we reverse the breakout out from previous highs we are being disciplined and taking profits from on our positions. If we are long Ethereum from below $715 we can keep the stops in place where we entered the position and put a stop below the monthly price of January's candle (715.15).
The last Cryptocurrency we'll look at in this post is Bitcoin Cash or $BCH (figure 1.4), this was recent post we had made on @essex_trading stating we liked $BCH over $400 as retested the weekly ascending triangle breakout pattern at $400 this week with a target of $1,026. This target represents the 23.6% retracement for Bitcoin Cash from its all time high in 2018. We tried something different and used a white background for this chart, let us know in the comments which you prefer!
I hope this gives you some insight into our thoughts in some of the largest Cryptocurriences by market, if there's a chart you'd like to see reach out to us or let us know in the comments. Thanks for reading!
Essex's Trading Quote of the Day (QotD)
“Like a chess prodigy who can see 3, 4, or more moves ahead, as a trader, you must learn to weigh second and third-order consequences."
~Trading Composure (@TradingComposur)