Bitcoin’s stunning chart this year contains some instructive lessons for us all in tape reading.
One, whenever an instrument corrects by 75%, chances of a rebound are high. In BTC’s case, prices have plunged from $20,000 to $3,150 in just over 12 months – a drop of 84%! This means that a rebound was increasingly likely.
Two, pay attention to price dynamics. A ‘dynamic’, in my book, is defined as a price move that makes everyone to ‘sit up and take notice.’ BTC’s dynamic occurred on April 2 this year when prices surged by 20% in one day. That stunned all the bears. That shock was so effective that prices never drop below $4,000 again.
Three, prices can rally far beyond anyone’s imagination, especially when the asset in question is under duress. In January this year, hardly anyone predicted BTC’s 200% rally because its trend was so bearish. Whenever the crowd is 99% bullish or bearish on an asset, it’s time to turn opposite.
Four, watch out for failed trend reassertions. For Bitcoin, prices first make a pivot low of $3,150 in December ’18. But a subsequent test of that low – at around February ’19 – failed to result in new long-term lows. This is an example of failed reassertion. Whenever a trend fails to reassert, it usually goes the other way.
Five, round number levels are important. In Bitcoin’s chart, levels like $5,000, $7,500, $10,000 all saw some price reactions. They even switch from resistance to support. Therefore, at this point BTC is likely to romp all the way to $10,000.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.