For over a year I have been highly critical of Bitcoin Cash even selling my remaining inventory last year, but over the past month or so, Bitcoin Cash has been showing some resilience and in my opinion is the best of the major alts.
If you listened to our radio show / podcast, our trade of the week was Bitcoin Cash. The following is the technical reasoning for taking this trade and an update. Keep in mind this trade was issued Monday and just triggered. Lucky you if you did not listen to the show.
Time Frame of trade 2-3 months.
This week on our radio show and podcast we are going to be looking at Beef alternative stocks or plant based protein stocks. Yes we are going Beyond Meats and looking at a couple of potential big winners so tune in.
After a 400% swing higher off the 2019 low, the pullback has been broad and deep for the most part. Regardless BCH is still up over 100% from its low and buyers are stepping in around the 200 level providing a strong level of support.
In my subjective opinion, Bitcoin has broken the interim bearish trend, though this is arguable depending on how you draw your trend lines. Personally two points is a line in my opinion, I like to see multiple hit points which is more indicative of a trend.
I still want to see a close and continuation above the interim bearish trend, but there are several other clues, pertaining to order flow, that provides further evidence of a high probability we are near a bottom.
The selloff in September found support off the 200 level and the subsequent rally back into resistance zone between 270 & 300 was an initial bullish sign. What we normally look for is a higher low and a bullish reversal that would push through this area of resistance.
Instead the market gave back this initial swing quickly and made an attempt at a new low or so it seemed. The break of 200 and push to 169 was quickly bought up which resulted in the formation of a bullish pinbar. This is evidence that buyers are active in the 200 area, and any push lower is finding bids quickly.
In short this is a failed low situation not a lower low. As described several times a failed low is when the market makes an attempt at making a new low, but quickly finds bids pushing price quickly back above support, which in this case is 200.
So we have the following pertaining to a technical observation of order flow:
- We are in a position (depth of the pullback) where we look for buyers to step in giving back 75% of the overall bullish swing.
- There is a potential failed low pattern – indicative that buyers are aggressive in the area below 200
- We have a bullish pinbar which is often a sign of a pivot point in the market
- The break above 220 is an initial trigger for a position trade where price taking out the 230 would confirm bullish action
Since Bitcoin Cash has the better structure of the major alts, in our opinion, we do not mind taking a position trade here. Generally we do not have stops for position trades as we consider them longer term positions where you need to give them room to breath. This is really a shorter term position trade, or a longer term swing trade. Also due to the market conditions we want to limit our risk.
Initial resistance is found around the 275 area so we want to remove some risk well before hitting this area which is why our initial target is at a reasonable 260 level. We expect there to be some selling pressure between 275 and 350, so we want to place our targets where we are likely to get filled at least with our 2nd target.
Removing 2/3’s the risk goes a long way in making this a risk free trade and with a lot of resistance in this area it may take a month or so to play out. It also puts us in a position to trade around this position if we get a pullback and bullish reversal out of resistance.
The key level to take out for a broader swing higher is 350. Now maybe we just blow right through this level and cruise to 450 and higher, but probabilities favor some sort of pullback and consolidation before taking this area out.
Now is this going to happen overnight? Probably not, this is a position trade so our time frame is several weeks to several months, but the reward to risk makes it a worthwhile trade.
The more conservative trader would wait for a bullish reversal off a higher low, so a push into the 260-300 area and a subsequent pullback. Yet this has been a broad consolidation and at these levels the market is starting to be more attractive especially as we get bullish setups with sentiment pretty dismal here.
The daily provides a little more insight as to where we can look for potential selling pressure or areas of resistance. Nothing magical about it, there is a lot of action at the 280 & 325 area in addition to the 380-440 area.
These are major areas of resistance so we want to have our targets below the second area of resistance. Why? Quite simple, it is not “likely” to just blow through both resistance areas with the probabilities of a pullback after hitting the first resistance area pretty high.
Taking risk off the table sets us up to take advantage of a pullback and subsequent bullish reversal. In addition there is no evidence that the correction is over. Could push into the first area of resistance and pullback to retest the 230 or even the 200 level again.
Fibonacci levels provide additional proportional levels where we can expect selling pressure to be high, but we do not base our targets on these alone. This is additional information we use when considering targets not the sole means.
Bitcoin Cash Daily
The question one may ask is “if this is part of a broader move to 450 or higher, why not just buy and wait for it to hit the 450 target?”
Again this comes down to time frame. IF you are looking at a position trade of 6-9 months or adding inventory for the long term (over a year) then this can be an ideal way for reducing your average cost with buying a small position here, and adding once the structure is more bullish for broader targets. But you may sit through a lot of noise.
Keep in mind it may take six months or more for the market to find favor and push new highs. If you do not mind waiting as an investor than nothing wrong with this strategy.
This may be a better one as the market is notorious for strong rallies and those taking this as a 3 month time frame trade, may see the 450 hit sooner than later and wish they would have held for the broader move. Regardless this is determined at the time of trade not after you enter.
It all comes down to your risk appetite and your trading strategy. Since we are already in a shorter term (Swing trade) with Bitcoin, it does not make sense to add more risk with such short term targets. Swing trades are generally a couple weeks to a month or so.
This trade we estimate a time frame of 3-4 months, so our stop is broader, targets higher and the reward to risk has to justify the time frame. We are also only risking 1% on this trade but the return is 2.5% profit.
Both trades fail we lose 3%, which is our maximum risk allowance in accordance with our rules and guidelines for limiting risk with any correlating equities. So with the market showing signs of improving we do not mind taking the maximum risk here.