OK, so last week our likely case was for sideways chop while the Bitcoin price takes a well-deserved breather. I’m either lucky or good (probably the former) as this is pretty much what happened. Bitcoin price bounced from the ~$700 / 50% retracement level and is currently balanced between the ~$900 / 23.6% and ~$820 / 38.2% retracement levels.
As of the time of writing (Saturday the 14th), we’ve had 3 days of light trading and low volatility, as signified by the short price candles and volume bars. After the tremendous volatility of the “Chinese bull run,” where price ranged $200 – $400 some days, it’s natural for the market to take a breather. All markets cycle between low and high volatility phases; dealing with the boredom of “sideways” is as much a skill as keeping your objectivity during steep trends.
What’s nice about low volatility markets is you get a tighter spread – the difference between the bid and ask price. The slowness also minimises your slippage, or the difference between the Bitcoin price you want and the Bitcoin price you get. If you’ve ever put in a limit order only to see price shoot past your specified price, forcing you to buy higher “at market,” you’ll get how slippage costs can add up. If you have a strong view of where price is headed, now might be the smart time to take a position – with proper stop-losses and targets in place, of course. I’ll cover how to set sensible stops and targets next time.
Anyway, right now it seems that buyers and sellers on Gox are more or less in agreement that 1 Bitcoin is worth about $900 – $950. Now we wait for something to unbalance this agreement, maybe some big news or big volume entering the market. In regular markets, Christmas holidays are usually a low volume lull where not much happens, but we shouldn’t assume the same will hold true of Bitcoin. After all, the Chinese have been major market-movers and they don’t celebrate Western holidays. And speaking of East Asia, now we hear Taiwan is getting an exchange…
Getting back to the Bitcoin price chart, it’s interesting to note that it bounced off the ~$700 / 50% level; suggesting that to be a key level to watch in future. The rule of thumb is that the more times price responds to a certain level (or trendline), the higher the level / line’s significance. This is a big part of my trading strategy; seeing how price behaves at key points before taking the according position. For example, if we see a close below that $700 confluence of recent low and 50% retracment, that’d be pretty concerning for bulls. Likewise a close above that ~$1250 high, which caps the double top, would be a clear signal for bears to cover their shorts.
Also visible in the chart are the default BitcoinWisdom 7 and 30 day simple moving averages. Although you can alter them when charting the latest Bitcoin price, I recommend sticking with these default values. Reason being, lots of people watch Bitcoin Wisdom but (probably) not many change the settings. The more eyes on an indicator, the more likely it is to become a self-fulfilling prophecy. And as we can see here, the Bitcoin price seems to be reacting to that 30 day MA. After a brief break below, it’s now resting on it.
We also nearly got a MA cross sell signal; this when a short-term MA crosses a long-term MA. Still, in the absence of other technical signals, sentiment shifts or new market information, I wouldn’t consider a MA cross, to either the up or down-side, to be an actionable signal here.
OK so going forward, anything can happen as always. Personally I expect a bit more nothing-much for a while. Some more base-building around this level would in fact be welcome, to fuel the next leg up. My big picture take on Bitcoin price remains that we’re headed higher medium term. Maybe $3000 in 2014 if Bitcoin adoption and coverage continues in a positive direction.
One thing I’m watching as a cue for the next moonshot is the successful creation of an Indian exchange. The Rupee has lost 10% or more value this year, and the Indian govt. is restricting access to gold, the people’s traditional store of wealth. With a functional exchange and favourable media coverage / word-of-mouth, Bitcoin could soon experience major demand from India, for both speculative and wealth preservation purposes. And once Indians realise Bitcoin’s value for remittance purposes or their import-export market, that’s a whole lot of people to boost the adoption rate.
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Last modified: December 19, 2013 13:32 UTC