After its dramatic collapse from $67,000 in November of 2021 to its current $18,000 to $24,000 trading range Bitcoin offers technical traders opportunities for profit not tied to the usual hype that it will hit $100,000, $250,000, or $1,000,000 by such and such date. Rather than buying and holding on for dear life in hope of any surge in price multiples can Bitcoin traders now profit as they would with stock, commodities, or currencies that trade within predictable ranges?
Range Trade with Technical Indicators
When a stock or currency pair trades within a range that generally means that its fundamentals are not changing very much and only market sentiment is driving prices up and down. Because nothing especially good or bad is happening to drive prices much higher or lower it trades within a range. The tools for trading Bitcoin in such a situation as we see ourselves in now are technical indicators. These are tools based on statistics that can accurately predict price swings based on past performance of the market.
Technical Indicators for Range Trading Bitcoin
There are many technical analysis indicators that can be used for range trading. The most common of such tools are moving averages and trading volume indicators. There are many such indicators but at some point, they become redundant in that they are showing you the same information. The key is to start with a few like these measures and learn them well. There comes a point at which trying to use too much information to trade becomes overwhelming and leads to mistakes. This is more common in novice traders.
Moving Average Indicators for Bitcoin
Although Bitcoin has spent the last four months trading with what for it is a relatively narrow range it still goes up and down within that range. Daily fluctuations can be confusing so experienced traders use a tool called the moving average to smooth out trading “static” and make better predictions of where prices are going next. The way a moving average works is that prices are added up over the preceding fifty, hundred, or two hundred days and then divided by the number of days. This provides average trading levels that are more indicative of where sentiment is taking Bitcoin than simply watching daily price fluctuations. When using both short and long-term moving average like the fifty-day and two hundred-day averages one can spot potential rallies with the “golden cross” in which the short-term moving average crosses above the long term moving average. This approach can also spot a potential collapse with the “death cross” in which the short term average crosses back below the long term average.
Trading Volume Indicators for Bitcoin
A common trading volume indicator that works for Bitcoin trading is on balance volume. What is important with OBV is not so much the volume of trading on a given day but the day-by-day direction of trading volume. When trading volume is going up along with price this is a sign that an upward trend will likely continue. When trading volume is going down along with price it indicates that a downward trend will continue as well. When price peaks are rising but OBV is not, beware of a likely reversal of the upward trend.
Using Technical Tools to Guide Your Bitcoin Trading
The rationale of technical trading is that the market is telling you what the market will do next. Pure technical traders do not concern themselves much with fundamental factors outside of daily market pricing. The most successful traders of stocks, currencies, commodity futures, and, yes, cryptocurrencies keep an eye on fundamentals as well. In today’s crypto trading it is important to be aware that the mantra that existed for a decade that crypto was the safe haven when the dollar went into oblivion and a refuge in times of social and economic chaos has been shown not to be true. Bitcoin largely tracked the Nasdaq in its fall from the end of 2021 and then has tracked it in ups and downs since then. Thus, the continuing war in Ukraine, inflation, rising interest rates, and the prospect of a global recession are all important factors to consider even as today Bitcoin trades within a predictable range.
Bitcoin Trades in a Predictable Range – SlideShare Version