Chart: Cryptocurrency trading a volatile mode |

Investors have been in deep turmoil since November, after the largest cryptocurrency by market cap rocketed higher, hitting an all-time high of $68,925 per token on November 10. The cryptocurrency immediately reversed, and proceeded to lose 61.4% of its Its value, decreased to $26,600 on May 12.

During this period, starting on April 4, Bitcoin also suffered a loss for eight consecutive weeks, its longest consecutive decline ever. Now, Bitcoin is rallying strongly against the US, heading for its second weekly gain today as it heads towards the $31,500 level per token.

The current movement is causing some to wonder if the cryptocurrency has bottomed and started another upward rally. We have also found some bullish potential on the technical chart.

Bitcoin chart

Trading during the current week confirms the inverse situation of the hammer that we witnessed last week. A close very low last week relative to a week high in bitcoin could involve some short trades.

The recent rally could mean that these traders are losing money which could lead to a short squeeze that would push the price higher. Also, the rate of change (a more sensitive momentum indicator than the RSI) provided a positive divergence, indicating that momentum is rising, despite the price drop.

However, we are more concerned about the price falling from its ascending channel since its March 2021 high, after the head and shoulder top. Moreover, the current rally can turn into profit taking only through persistent short positions.

Bitcoin chart

Bitcoin chart

On the daily chart, Bitcoin formed a bullish flag, falling after a massive 33.5% drop in just eight sessions between May 4 and May 12, including five consecutive days of selling.

And the fact that the flag has developed on the neckline of the massive double top since April 2021 doubles its technical potential. Also, the cryptocurrency has been trading within a bearish channel since the November 10 high, which reinforces the bearish view.

However, we can only invoke the flag when it is hacked down. Also, recalling the flag as the pattern enters its fourth week of development may cause it to generally take between one and three weeks to develop. As such, cautious traders will wait for the decisive breakout.

Trading Strategies

Conservative traders should wait for the downside breakout of the pennant and double top, below $28,000, and then wait for a return move that will at least retest the neckline of the top if not the flag – which is higher.

Moderate traders will wait for the same bearish breakout and corrective rally to follow a better entry, if not to confirm.

Aggressive traders can also sell now, provided they accept the higher risk that goes along with the higher reward for defeating other traders. Money management is also critical. Below we have provided a general example.

However, if you learn how to incorporate your timing, budget and mood into your own plan, the chances of success should improve dramatically as you start trading.

Trading sample – strong deficit

  • Entry: $32,500

  • Stop Loss: $33,000

  • Risk: $500

  • Target: $30,000

  • Reward: $2,500

  • Risk Reward Ratio: 1:5

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