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Technical analysis for bitcoin trading

In this article we will look at some of the technical analysis indicators for bitcoin trading. Note that most of the content depicted here can also be applied to trading futures, commodities or stock.

For more fundamental bitcoin analysis and alt coin analysis, please visit:

Time frame of trade

When analyzing, the output can change depending on the timeframe.

This can vary from 1m(in) to 1M(onth) or longer.

Depending on the type of trader you are you might want to use  different timeframes. Swing traders focus on 1 day or longer, day traders focus on hourly timeframes and “scalpers” focus on minutes. Note that these concepts are not just applicable to bitcoin analysis but they can also be applied to commodities and equities.

You are probably aware of this, but the shorter the timeframe the greater the risk. This is because these shorter timeframes can provide mixed signals when it comes to indicators. Therefore, this makes scalp trading the riskiest of them all.

Additionally, this is what long term investors refer to when stating that fundamental trading is a safer bet.

The longer the timeframe, the stronger the trend

Using an indicator such as EMA you could notice some downtrends depending on the selected trend.

Bitcoin support levels – January

However if you consider the longer periods such as 1 month for bitcoin trading, you will notice that we are still in a up trend. ( this chart was generated late January)

Day trading

In the picture above you will see several support levels while the one below will show various  resistance levels

BTC resistance levels – late January

When finding a situation where the asset is trading sideways for a few days, it can be hard to tell what the price is going to  do next.

BTC trading sideways

However, you can estimate what the price will do depending on the end of day result. For example, if the price goes below 30 K , then you have confirmed you are in a down trend.

First resistance level to watch

Vice-versa, if the day closes above 33K , then this signals an uptrend:

Breakout resistance level

Once the trend becomes evident, one can look into the 4H or 1 H timeframes and trade based on the daily trend.

Leveraged bitcoin trading

Can benefit traders for the price of bitcoin going down. Esentially you are trading with borrowed money but it can be risky trading play.

Can profit trading if the price of the asset goes up by going long or the opposite by going short.

Depending on the platform you can trade with various amounts of leverage 2x, 5x, 10x, etc.

For example: if you short bitcoin with 100X leverage and price of BTC drops from 30K to 29 K , you will make 10.000 USDT.

However, if the price of BTC would go above just by 30 USD you will lose the 3K investment. The reason is because you are trading with 100X leverage.

The Exchange will then have to liquidate your position since they are the ones lending you the money. Taking into account the price fluctuations of BTC, it’s best to use a stop loss mechanism.

Stop loss

Can be configured to automatically close the position if – for example – the price of BTC would over 30K by 5 USD( doesn’t sound much but 5×100 means 500 USD loss ).

Safer ways

Binance introduced leverage tokens like ADA DOWN and ADA UP.  In contrast to the classical leveraged trading, with this method you can’t technically be liquidated when you hold these tokens.  Instead, the value of the token simply rises or falls depending on the type of token it is.

Example:

Aave

Leverage prices AAVE – January

Can see the AAVEUP token has gone up by 11.28% in the past 24 hrs whereas AAVE has only gone up by 6.6%(roughly 2x)

On the other hand the AAVE DOWN has falled 22.44 which corresponds to roughly 3.5 x. Note these are just some examples but the same applies to bitcoin trading as well.

How to detect major moves before they happen:

Some patterns depicted below

Bearish flag is depicted below:

Estimating where BTC will drop in price.

Here you can use the previously denoted support levels for understanding where to place the stop losses.

The circled line below is the 200 day Moving average( MA) which in this case acts as a strong support line.

Can sort of confirm possible price action by drawing the line of the pole when the flag was on the rise parallel on the downside:

Bearish flag possible drop up until 200day MA which acts as support line

These are the zones where one can set stop losses or if you happen to be at this position, strengthen the position to accumulate for the long run.

How to know when the down trade begins:

Look at the trading volume. For example decreasing volume of selling can indicate that people are HODLING.

However, if the selling volume increases drastically and the price also crashes, then you are spotting the  down trend.

Example below for bitcoin trading:

Increase in selling volume leads to price action drop

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Bitcoin trading all time high ( ATH ) predictions

Use the fibonnaci indicator. For this indicator to work, the security / asset would have to have a swing high and a swing low.

There are other psychological levels such as BTC reaching 100K. Very likely some people will take profits here.

That pretty much sums up bitcoin analysis for short term trading . The following indicators are some of the most used technical indicators and price actions one can use.

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