Bitcoin Price Discount Opportunities

Journalist:
September 18, 2014

In character with the pump-and-dump market rhythm induced by the Fed’s five-year QE program, markets resumed their usual direction after the FOMC statement last night. A mediocre Fed statement saw the Bitcoin price drop to an intra-week low and then stall. Stocks and the Dollar are up with Gold and Bitcoin holding at their lows.

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Bitcoin Price Down – But Not All The Way

The Bitstamp chart shows how the Bitcoin price, last night, dropped to a new intra-week low. However, instead of reversing at the lower channel trendline, price had reversed at a 1.618 Fib extension level.

The reversal at a Fib level, rather than at the within-reach lower trendline – overlapped by a weekly pivot S2 level – is odd. In case we suspect that this is The Reversal – it doesn’t appear to be. No significant target was hit, nor had price action displayed the hallmarks of reversal: impulsive, thrusting and hauling distance. Advance to the channel upper trendline (and beyond) will clarify this matter.

Failure of price to regain altitude will maintain the downward biased view and the targets that await at $439 (lower trendline) and $412 (2.618 Fib extension of the first wave down).

Opportunistic Bitcoin Buying

Pre-Traumatic Stress Disorder

Every Bitcoin trader and investor has experienced those moments when you look at the chart and experience the flash vision of price being in the beginning phases of a terrible and relentless crash to near-zero. Of course, this is a permanent market reality – not price going to zero, but a sudden flash-crash to levels assumed to be relegated to distant pre-history.

Trading whilst holding this mindset is stressful. As always, one has to find an opportunity in the scenario and use it to your advantage. The opportunity of a flash-crash is that it allows one to buy at a discount. If you’re holding a leveraged long position during a sudden price drop, chances are you won’t be able to calmly or rationally buy in at the lower level. Why?

  • you’re worrying about your long position closing out,
  • the draw-down on your margin balance will probably mean that you are unable to purchase at all

The opportunity is lost.

Fortune Favors Those Who Are Prepared

A suitable strategy is to have an additional trading account which exists solely to capitalize on unexpected downward price spikes. The buy levels can be selected via the orderbook or determined by searching for support and resistance levels on daily and 4-hourly charts. Price often uses moving averages as dynamic support and resistance, so opportunistically place buy orders where they are likely to be triggered by the free-falling price as a result of margin calls and stop losses. The free-fall is mostly halted by a large group of buy orders at some psych level or S/R down in the valley.

Good idea, but bear in mind that the critical aspect of this strategy is to do your homework. Every trader wagering with leverage should have a calculator or spreadsheet for determining position size and close-out level. Without this, you’re like a climber without a rope. For example, you should be able to determine the correct size buy order to place in the path of plummeting price – that will also survive it going to the lowest possible level ($10? $99?).

You want to know your exact risk and parameters for every position. Let others make the mistakes that send price tumbling down into your buy orders.

Economic Data and Announcements

US

This week’s major calendar event is the Federal Open Market Committee (FOMC) statement released yesterday. The statement met expectations and featured the usual “forward guidance” language adopted by the Fed. They vowed to wrap up QE3 in October was reiterated, and the market was assured that interest rates would be kept near zero percent for a “considerable time”.

Fed officials expect, on average, that the benchmark federal funds rate will be between 1.25% and 1.50% in late 2015 and between 2.75% and 3.0% in late 2016. The Fed downgraded its 2015 growth forecast for gross domestic product to 2.6% (from the previous forecast of 3.0%).

A satisfied market responded by rallying stocks and the US Dollar which currently at a local high of 84.5. Precious metals and precious Bitcoin dropped to new weekly lows before entering holding patterns.

Gold low: $1216
Bitcoin low: $443.57 (Bitstamp)

UK

Today sees the Scottish Independence vote with results expected tomorrow Friday 19 September.

Later Today

Scottish Independence Votes Preliminary Results
Fed Chair Yellen Speaks
UK Retail Sales (month-on-month)
US Building Permits

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CCN hosts a summarized Economic Calendar showing the week’s main data releases.

Updates to this article will be made during the European and US trading sessions should any significant events come to light.

Ongoing discussion in the CCN Traders group. View our Bitcoin Price Chart here.

Disclaimer

The writer is fully invested in Bitcoin via BTC-e and Bitfinex. Trade and Investment is risky but not as risky as some other things out there. Take care only to take action in the market when you are 100% sure of the outcome. CCN accepts no liability whatsoever for losses incurred as a result of anything written in this Bitcoin price analysis report.

Images from Shutterstock.

Last modified (UTC): July 12, 2015 10:50

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.