Bitcoin Bitcoin / US Dollar It saw choppy action during the first part of the 24-hour trading session, dropping about 15% between 9pm on Wednesday and 3am on Thursday before recovering all of its losses and trading higher by midday.
The rebound higher was expected because bitcoin is oversold on larger time frames and with every bearish cycle, which bitcoin entered in January, reversals occur. Although a larger upside rally is likely over the next few days, bitcoin is trading in a confirmed and steady downtrend.
A downtrend occurs when a stock is constantly making a series of lower lows and lower highs on the chart. Lower lows indicate bears in control while choppy lower highs indicate periods of consolidation.
Traders can use moving averages to help identify an uptrend with lower time frame moving averages bearish (such as the 8-day or 21-day exponential moving averages) indicating that the stock is in a sharp short-term downtrend and the longer-term bearish moving averages (such as the moving average). 200-day simplex) indicating a long-term downtrend.
The stock often indicates when the lower low is inside by printing a reversal candlestick such as a doji candle, bullish engulfing candlestick, or hammer candlestick. Similarly, the lower top can be indicated when a doji, tomb, or dragonfly candle is printed. Moreover, lower bottoms and lower tops often occur at resistance and support levels.
In a downtrend, the “trend is your friend” so it isn’t and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who already hold a position in a stock can feel confident that the downtrend will continue unless the stock goes higher. Traders looking to take a position in a stock trade in a downtrend can usually find the safest entry at the lower top.
- Bullish traders can enter the trade at the lowest low and exit the lower high. These traders can also enter when the downtrend breaks and the stock is higher which indicates that a reversal to the upside might be in the cards.
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Bitcoin chart: Bitcoin has been trading in a sharp downtrend since March 28, with the latest low on Tuesday hitting $32,645 and the last confirmed low of $37,401 on May 1. The next lower low may be, although Friday’s candle will be needed for confirmation.
- If Bitcoin closes the trading session flat or near the highest level of the day, the crypto will print a long-leg candle or hammer candle, respectively, on the daily chart, which could indicate a price rally on Friday. If the stock falls towards its lowest level on the day to close out the 24-hour session, this could indicate that prices are in the cards and that the lower bottom has not been printed.
- The former is more likely to happen because Bitcoin’s RSI has been hovering at 23% and 28% in the last three trading sessions. When the RSI of a stock or cryptocurrency reaches the 30% level or drops below the 30% level, it becomes oversold, which can be a buy signal for technical traders.
- Bitcoin trading volume at press time was above average, at over 57,000 on Coinbase compared to the 10-day average of 34,896 on the platform. This indicates the return of a high level of interest to the cryptocurrency.
- Bitcoin has higher resistance at $29,321 and $32,200 and support below at $25,772 and $22,729.
See also: Bitcoin, Ethereum, Dogecoin Crash On Inflation, Terra (LUNA) Woes