Bitcoin Price Analysis — Buy the Dip

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, although I’ll briefly describe a shorter-term scalp setup.

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: 4.6:1

Average Active Long vs Short Volume Ratio: 2.4:1

We have a 90% excess in active long volume relative to the average. The average weighted long entry price is $417.62, which is only slightly higher than the current market price.

Sentiment is bullish, although longs are slightly underwater. The risk of a long squeeze is above-average due to the high long ratio, and this risk will increase if price continues to drop. A broader long squeeze may take effect if price breaks down below the key $400 support level.

Macro Key Points

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

There was not a huge amount of media coverage for bitcoin this week. Most trading volume was focused on the ETH/BTC and ETH/USD pairs which garnered significant attention as ETH broke its all-time highs several times in the span of a few days.

News developments that may affect BTCUSD:

• Bitcoin Classic is running on the majority of nodes. This is bullish as bitcoin holders anxiously await a solution (even a temporary one) to the block size quagmire.
• 21.co launches a micro-payments marketplace, where machines can use APIs and pay with bitcoin based on usage. Machine-to-machine payments have long been hailed as a bitcoin killer app and this is a significant step in that direction.
• Reports of blocks filling and thousands of unconfirmed transactions underscore the fragility of the network and the importance (and imminence) of resolving scaling issues.
• The halving occurs in under four months. The extrapolated post-halving bitcoin price, based on current market price and assuming demand for bitcoin remains the same, is about $205. This may sound inexpensive to many observers who will be looking to go long.

Technical Analysis – 4h+ Timeframe Setup

Let’s start by determining key support and resistance levels on a higher (daily) timeframe. We find that price is resting on a daily support area around $410.

As for trend lines, we have both supporting and resisting levels, which signal that price is in a relative squeeze in a triangle formation converging around the $430 level, with current lows at $400 and highs at $450.

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

We see that we are pretty much sitting on double support with a 4h pennant squeeze restricting significant price moves for now. This price squeeze, however, should set us up for a high-probability breakout trade which can be either long or short. Double long-term support from the 4h trendline and the $410 level are indicators that have us leaning toward a bullish breakout.

Technical Analysis – Scalp Setup

Let’s see if we can identify a good scalp setup on the sub-hourly timeframes.

Betting on a continued ping-pong movement of price, and assuming macro events do not suddenly change or catalyze, we can long support and short resistance inside our smaller trend line pennant formation, giving us $5 moves to trade.

Trade Ideas

The technical view indicates a shy long with an approximate $445 price target. I say “shy” because the market is not trending (it’s ranging and we generally want to avoid ranging market trades). Set a relatively tight stop around $408 because a breakdown of trend line support would invalidate the trade.

A higher-probability trade would be to wait for a dip before going long. This dip would represent weak longs closing into large bids (remember that sentiment is overwhelmingly long, with some longs underwater, so a few of those longs are certainly ready to panic close). This may result in a wick below our 4h trend line support – a wick that should be bought. The dip would also signal a trendier market which is always better to trade than consolidation.

This trade is invalidated if we break and stay below the daily trend line support around $400.

Shorting is not recommended unless $400 support clearly breaks. Even then, with the halving on the horizon (bitcoin supply is halved this July), a long-term short is a risky bet.

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.