Three sided shapes
My readers or anyone who follows Bitcoin’s price action closely would know that last week and then again this week BTC broke out of formations that had defined price action for the first four months of 2020. But initiating a long or short position solely off of these formations is not recommended. That is why they must be used in conjunction with other indicators for them to be tradeable. We went over the two formations in previous articles, (Tuesday, April 21st) as well as some of the technical indicators that predicted this rise and today we will try and illustrate how to best put to use your hard earned money to use while taking on the least amount of risk.
Of course an individual’s risk appetite may vary from the next; I will attempt to go by an average trader with less than $10,000 capital to invest. Even though Bitcoin traders as well as younger traders tend to have a greater risk appetite I will attempt to draw conclusions from the perspective of the average trader and sway towards conservative if I drift from the median.
One of the most widely used indicators is moving averages; on our chart we show the 21, 50,100 and 200-day moving averages which have been in a bearish formation with the longer term averages below the shorter term going back into the end of 2019. As I will show you each time BTC broke out of its formation it correlated to a bullish sign from these moving averages.
The first of which occurred on April 6th when BTC futures broke out of the smaller of the two compression triangles highlighted in blue. You can see how on that same day we broke above the 21-day exponential M.A. for the first time min well over a month. The second breakout was on April 22nd when BTC traded above the compression triangle drawn from the yearly highs and lows we broke above the 21-day once again and have since moved farther and farther above this average. The next day the rally continued but found resistance at the 100-day M.A. so much so that on Wednesday when it managed to trade above it so much energy was released that it cracked the ceiling of the larger ascending triangle in yellow and effectively traded and closed above three distinct levels that now should form support. These levels include the 100 and 200-day moving averages as well as the .618% retracement at $8,202.
From the eyes of a technical trader who is bullish long term what would have been prudent and will be next time these scenarios pop up is to buy the breakout making sure it is not a false breakout by waiting for the trading day to fully close and buying from the long side on the next session opening if it opens any higher. These are great patterns to use in your arsenal of techniques because by placing a protective stop right at the breakout point you expose yourself top minimal risk while obtaining maximum reward.