Bitcoin Price Analysis — How to cash in on the upcoming price action

The technical setups posted below use simple trend detection, support and resistance, channels, pattern and candle analysis. We aim for high-probability trade setups on BTCUSD and use very few indicators. All charts use BNC’s Bitcoin Liquid Index for maximum accuracy.

The timeframe for trades is 1 to 7 days, so we’ll use 4h candlesticks. Bitcoin is best traded as a purely speculative commodity on 4h+ timeframes.

Market Sentiment

This section is based on internal (anonymized) Whaleclub trading data and is published exclusively on BNC.

Current Active Long vs Short Volume Ratio: 2.5:1

Average Active Long vs Short Volume Ratio: 1.8:1

We have a 50% excess in active long volume relative to the average. The average weighted long entry price is $418.28, which is lower than the current market price – on average, active longs are in the green.

Sentiment is bullish, and the bears have again failed to make lower lows, with relatively little action or volatility in the bitcoin markets. Nobody is really sure why, but it looks like a storm is brewing. However, one thing is certain; once the market chooses a direction after this months-long consolidation, the trend it creates will be strong and long-lasting. And that time may come soon.

Macro Key Points

This section is an overview of news headlines or events that may affect BTCUSD.

• OpenBazaar is open for business. This fully decentralized marketplace, powered by bitcoin, has the potential to change how we do commerce forever. Although the reception has been lukewarm, this just may be one of the killer bitcoin use cases everyone’s been looking for. It has gotten the community excited, and price action may follow.

• The Panama Papers: 2.6 terabytes of Panama shell company leaks reveal massive networks of money laundering, tax evasion, and financial fraud tied to prominent world leaders. People who have assets to hide from pesky government hands may now think twice about funneling through offshore companies – bitcoin may prove a suitable alternative.

• The bitcoin block reward halving is estimated to occur on July 12, 2016, about three months from now. The supply will halve – and assuming demand remains the same, the post-halving value per bitcoin is around $840. Extrapolating this based on the current market price, the present value of one bitcoin is around $210 – an attractive entry price.

Technical Analysis

4h+ Timeframe Setup

The BTCUSD market is still in its consolidation zone from last week. Our key daily support and resistance levels are left almost untouched. Daily support area is around $410 and daily resistance area is around $435.

As for trend lines, our squeezers and pennant from last week are still valid and will serve us well this week as price approaches upper resistance. We have both supporting and resisting levels in a triangle formation converging around the $430 level, with current lows at $400 and highs at $450.

This week we identify secondary trend lines (in bold green below) – we see that price has broken out above these in the past few days. This may be a prescient sign of an upcoming bullish breakout above our primary trend lines.

Again this week, price has not made lower lows (gold discs in chart below) as it consolidates. In general, the more price touches a trend line or support/resistance level, the stronger that level is. We see that price has touched our supporting trendline repeatedly without breaking down. It looks ready for a breakout.

Now let’s switch to the 4h timeframe to dig a little deeper. Our daily trend lines and S/R levels are preserved.

The consolidation is clear. Price has been zig-zagging between the $410 and $425 levels for more than a month now. It should be noted that such a long and tight consolidation has only happened once or twice before in bitcoin’s history. This may be an indicator of lower long-term volatility, but we think price is just taking a rest and getting ready to break out, assisted by our supporting trend line and underlying bullish catalysts.

Bears have been failing to make lower lows over the past couple of months. Upper resistance around $425 is being tested heavily – this is usually a sign that a breakout is brewing. This pattern is known as an ascending triangle. Although past performance is not indicative of future performance, it has performed quite well historically as a leading indicator of bitcoin price action.

Naturally the first breakout scenario we envision is bullish. To secure a trend, we expect price to break up above the previous swing high of $430. A pause in the pump can be expected as price makes its way to our medium-term target area of $445-$450.

The bearish scenario is described above. Price dumps to the consolidation support area before continuing on to reach swing low around $395. We deem this scenario unlikely to happen unless powered by a bearish news catalyst. The downside is limited.

Trade Ideas

The highest probability scenario is the bullish setup described in the section above.

For additional confirmation, you can wait for a clear breakout above the $430 swing high, placing limit orders to buy $430 once that occurs, with $445 and $450 targets that you can use to ladder-exit (exit half your position at each price). For further confirmation, you can wait for price to retouch those resistance-turned-support levels before entering your buy orders.

Sentiment-wise, we do notice more longs this week, similarly to last week. This may indicate that professional players are slowly accumulating at these price levels as rookie longs close predominantly in the red. The macro-bias is still bullish, with the halving on the horizon and the limited downside favors those who go long. So we see going long now or at the $430 breakout as the highest probability trades.

We’d like to take a moment to thank you for reading the new Analysis Series on Brave New Coin. The previous articles in the series are Buy the Dip, Bears Beware, Bullish momentum at last and Breakout Imminent. Constructive comments and suggestions can be sent to [email protected].

Disclaimer: This is not financial advice. The information presented in this post is an opinion and is not purported to be fact.

Petar Zivkovski has a Master’s Degree in Mathematics and Computer Science. He spent 10 years trading for BlackRock before assuming his current role as the director of operations at Whaleclub.