This morning, Europeans woke up and found this horrible scenario in the crypto market: but was this move predictable?
To answer the question, we will use simple trend lines, RSI and Volume indicators.
Bitcoin (and the entire crypto market) followed a stable uptrend since the beginning of December, bouncing from 3200$ to the 4200$/4400$ resistance. The uptrend has been tested 6 times (blue rectangles), and it never gave signs of weakness in the past: In fact, when the price was near the bottom line, it always jumped away.
The last week we tested multiple times the resistance (in the 4200$ zone), and this lead all the investors to think it would have broken upwards.
But two technical indicators would have tell you the opposite: RSI and volume.
The Relative Strength Index lost power at every trial to break the resistance (bearish sign), and the volume was tinier and tinier every time (very bearish sign).
You can easy doublecheck that, in the last year, when the BTC volume decreases it follows more down for the asset.
So, was this predictable? The answer is that you cannot predict with 100% accuracy this move.
Was this tradable? The answer is yes.
If you believe that technical analysis works on this instrument (as we strongly do, because of inefficiencies and low volumes). The way you could have traded it are two.
- Based on volume and RSI indicator, you could predict that BTC wouldn’t break upwards but downwards
- You place a margin sell order, 20$ below the trendline (support), and a stoploss 20$ over the support (to avoid fake breakouts). You will then wait until you don’t see sell pressure anymore, and close the trade.
As BTC broke his major support for this uptrend, we believe that there is more down to come: it has to find the next support, which could be around the 3600$ area. Anyway crypto market showed a good recovery in the last month, and we think that an short term test of the 3200$ area is not likely.