Market Overview: Bitcoin
Bitcoin’s recent weekly chart unveils a market entrenched in a trading range, marked by notable bullish resilience. At Monday’s close, bears appeared poised to establish an EMA gap bar, signaling potential downward momentum. However, bulls thwarted this move once again, indicating that a definitive major top has yet to materialize. This persistent bullish defense underscores the market’s intricate dynamics. In the following analysis, we delve deeper into the weekly and daily charts to shed light on these developments and their implications for Bitcoin’s future trajectory.
Bitcoin
The Weekly chart of Bitcoin
The weekly chart of Bitcoin reveals a market that has been confined within a trading range, encompassing over 20 bars following a significant bullish breakout. This range-bound activity suggests a balance between buyers and sellers, with neither side successfully asserting dominance to establish a clear trend direction. Notably, the price has initiated three distinct downward swings from the $70,000 level, which has proven to be a formidable resistance point. The most recent price action has resulted in the formation of a wedge bottom pattern, a potential precursor to a bullish reversal.
As the week commenced, Bitcoin experienced a sharp decline, testing key support levels. However, this downward movement was met with buying interest, leading to the creation of a reversal bar, suggesting that bulls are gaining momentum. The $50,000 level, a significant round number and a previously established breakout point, has been highlighted throughout our reports as a crucial area where many participants were and are willing to buy. This level not only represents a psychological barrier but also serves as a technical support zone where trapped bears looked to exit positions at breakeven, thereby fueling the current upward price action.
Additionally, during the prior bull run, many long-term bulls took profits near previous all-time highs, anticipating a better opportunity to re-enter the market at lower prices. The current price movement towards the $50,000 area appears to be that opportunity, as it offers a more favorable trader’s equation, particularly when considering the proximity of the Major Higher Low (MHL) around $40,000. From a risk-reward perspective, buying near $50,000, placing a stop below $40,000, and targeting a retest of the all-time highs seems a viable strategy. While some bulls might take profits around $60,000, there remains potential for the price to trade higher.
The current reversal from the three downward pushes following the all-time high demonstrates the resilience of the bulls. Despite facing resistance and the presence of sell signals on both the monthly and weekly charts, bears have been unable to capitalize on these opportunities, resulting in a sense of disappointment among bearish traders. However, it is important to note that the weekly chart does not exhibit a distinctly bullish trend; the formation of a bull trend would be necessary to confirm further upward momentum.
The potential for short-term sideways to downward movement remains, especially considering that the current weekly bar spans $10,000. Such a large movement might cause hesitation among bulls, as the trader’s equation becomes less favorable at these levels. While the probability of a trend resumption from the current point is uncertain, a favorable trader’s equation would involve a stop loss around $40,000 and a profit target at least at $90,000 or $100,000. However, given the lack of strong momentum, a better structured approach might involve buying on a pullback to $55,000 and taking profits near the current all-time highs.
For bears, the situation is challenging. Last week’s price action resembled a Low 3 within the range, and with $70,000 having been tested thrice, caution is advised for future bearish positions.
External factors such as a decline in the stock market could lead to deleveraging by institutions, potentially impacting Bitcoin’s price. While this does not preclude Bitcoin from rising amidst a stock market downturn, it is a fundamental aspect to be aware of.
In conclusion, the $50,000 to $60,000 area appears to have established a strong buy zone, but a trend resumption may not yet imminent. The area currently looks like a potential bottom, but further confirmation is needed to ascertain the strength of a potential upward move.
The Daily chart of Bitcoin
The daily chart of Bitcoin has exhibited a prolonged trading range, consistent with the broader observations from the weekly chart. On the left side of the current chart, a bear channel is evident, followed by a bullish breakout from this channel. However, this bullish momentum was short-lived, leading to a failed bull reversal from a wedge top, and a subsequent second leg down. This downward move culminated on Monday with a sell vacuum that tested key support levels, particularly those aligned with higher time frame analysis.
Following this test of support, the price reversed strongly upwards, yet it remains within the prior trading range. This position is not ideal for initiating new trades, as the price is confined within the range. Consequently, traders may find it challenging to identify optimal entry points without additional price strucutres.
For bullish traders, the better trading opportunities may arise from a pullback, potentially forming a higher low. This setup could provide a chance to bet on a retest of the current highs. Classic trading patterns such as High 1, High 2, or High 3 setups may offer good entry points for long positions. Buying at the market at the current elevated levels within the trading range seems more challenging for a good trader’s equation.
On the bear side, traders might look for a parabolic wedge or a micro double top as potential reversal setups to initiate short positions. The expectation would be for the price to test the lower zones of the chart. Bears might also sell at the breakout point, particularly since it is situated high in the trading range, and could be reinforced by sell limit orders from bulls trapped in the weekly timeframe. Another bearish strategy could involve selling above the recent sell climax high with limit orders, anticipating a price pullback from bulls taking profits.
Overall, the daily chart suggests that the best approach is to buy low and sell high, typical of a trading range environment. Often, trading ranges are followed by contraction patterns, such as triangles or tighter ranges, which tend to trap both bulls and bears. These patterns usually precede a more decisive breakout, which could signal the start of a new trend in the future.
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