Bitcoin Price Analysis — Breakout imminent

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: 2.72:1

Average Active Long vs Short Volume Ratio: 2:1

We have a 72% excess in active long volume relative to the average. The average weighted long entry price is $415.8, which is a little lower than the current market price – this means that on average, active longs are in the green.

Sentiment is bullish, like last week, but the underlying data has evolved from a short position majority to a long position majority. Large amounts of shorts have closed as they banked on Monday’s $10 price dump. The market is preparing for a breakout from consolidation above the key $430 level.

Macro Key Points

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

• The scalability of the bitcoin network is still a major issue and has made headlines this week on Twitter with Andreas Antonopoulos speaking in Prague about a possible solution – but the deadlock is still real.

• Overstock, an early adopter and proponent of bitcoin, has made multi-million investments in bitcoin companies based in the Caribbean in an effort to disrupt finance in the area.

• Again this week, we’d like to remind our readers of the bitcoin block reward halving which is estimated to occur on July 10, 2016, less than four 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 drifting. Our key daily support and resistance levels are left almost untouched since last week, as we nailed our previous predictions almost perfectly. Price has consolidated between daily support area around $410 and daily resistance area 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.

It’s interesting to see how price has not made lower lows (gold discs in chart below) even as it consolidates, but has achieved higher highs (dotted blue trend line below). This is a bullish sign – price is 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.

We detect a resistance level in the consolidation at the $420 level. Price has touched this level over and over again but is struggling to break up.

There are multiple breakout scenarios in which price continues its bullish upswing, powered by more shorts closing (short squeeze) and additional long entries, with temporary pauses and pullbacks.

We also envision a potential reversal, that brings price back down to the lower trendline level, with a price target of $415. This is a likely scenario as a continuation of last Sunday’s $10 price dump, longs who were then surprised by the sudden dumps may find the current market price attractive to close their underwater positions.

However, the downside is limited. Barring any bearish fundamental catalysts, a dip to $415 is a high probability bullish setup and should be bought.

Trade Ideas

The highest probability scenario is to play the breakout trade described in the section above – the one we also described in last week’s analysis. For additional confirmation, you can wait for either a $415 dip, which will give you a better entry, or for a clear breakout above the $430 consolidation area, placing limit orders to buy $430 once that occurs, with $440 (short-term) and $450 (longer term) targets. For further confirmation, you can wait for price to retouch those resistance-turned-support levels before entering your buy orders.

This week we detect a narrow but strong bullish channel that you can also trade. A bullish zig-zag scenario as described in the chart below is also high-probability.

Sentiment-wise, the tick up in longs this week may indicate that professional players are slowly accumulating at these price levels as last week’s rookie longs closed 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 at the support levels (including buying the potential $415 dip) and trading the breakouts 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, and Bullish momentum at last. Constructive comments and suggestions are always appreciated, and 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.