Uncharted Territory: How Technical Analysts Trade Bitcoin at Always Highs

Bitcoin’s bull run seems to be at its peak amid a broader consensus that 2021 could bring more substantial gains. The question now for market participants is how high the cryptocurrency could go and, conversely, what levels might act as support levels or potential entry points for investors looking to buy.

For long-term investors, continuing to “HODL” coins and fiduciary forecasts to rally bitcoin prices to over $ 100,000 from prominent observers is a fairly straightforward way to play the market. Yet, short-term speculators and leverage traders, who rely more on technical analysis to identify price targets, resistance and support levels, may find it difficult to continue doing what they have been doing without price levels previous to provide obvious references.

That’s because bitcoin’s latest move above $ 20,000 has pushed the cryptocurrency into uncharted territory. As the highest cryptocurrency has never been traded above $ 20,000 before, there are no “higher price lows” or “lower price peaks” that could be considered potential bull / bear targets or levels of support / resistance.

In such a scenario, Fibonacci extensions and tracks can help identify key price levels, according to William Noble, chief market technician at Token Metrics.

Fib extensions reveal $ 26,000 as the next target

The $ 26,000 level “is the 38.2% extension of the move from the bottom of March to the November highs of about $ 19,000,” Noble told CoinDesk during a Zoom interview on Wednesday. “That’s the first target for bitcoin.”

Bitcoin Fibonacci extension
Source: Token Metrics

If prices break above $ 26,000, the focus would shift to the 61.8% extension at $ 29,822. According to Noble, the 76% extension at $ 32,000 could act as resistance or serve as a potential price target.

The Fibonacci extension for an uptrend is removed by joining three points – the lowest price or point of origin of the bull trend, the high price of a high, and the lower of the subsequent withdrawal bounce. That will produce Fibonacci extension levels of 23.6%; 38.2%, 50.0%, 61.8%.

Bitcoin daily chart: Example of Fibonacci extension and scaling
Source: TradingView

Meanwhile, the Fibonacci price on an uptrend is subtracted by associating the low and high points to get 23.6%, 38.2%, and 61.8% levels.

These percentages are based on the Fibonacci sequence – a series of numbers starting from 0 and arranged so that any given number of the series is just a summation of the two preceding numbers. For example, 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 and so on.

A closer look at the sequence tells us that each number is getting closer and closer to 61.8% of the following number. Further, each number comes closer to the 38.2% of the number two positions on the right and 23.6% of the number three positions to the right of it.

That’s how arrears are calculated. Meanwhile, working the sequence in the opposite order gives levels of extension. Traders do not need to know the formula or do calculations, as charting software or a platform like TradingView will do it for them.

The challenge is to select the most relevant price points when subtracting Fibonacci extension and scale levels. “It’s more of an art than a science,” said Noble.

Fib extensions in 2017

Fibonacci tools served the purpose in 2017 when bitcoin was trading in uncharted territory for 10 months.

Bitcoin’s 3-day chart shows the 2017 rally peaking just above Fib’s 161.8% extension
Source: Token Metrics

The cryptocurrency rose to record highs above $ 1,200 in February peaking at $ 19,783 – slightly higher than the 161.8% (extreme extension) Fibonacci extension of the move from January highs to November highs .

“I’ve never seen anything stretch that much, but 1.618 stretched all the way up to nearly $ 20,000,” Noble quoted, adding “Fibonacci extensions would have helped if you were to buy cuts in 2017. ”

Many analysts expect bitcoin to chart a similar meteoric rally to 2017 in 2021. However, Noble believes it could play out in the decentralized funding (DeFi) coins.

When asked about the level to watch for during potential setbacks, Noble said the 61.8% price could “serve well in the alternative cryptocurrencies and DeFi universe coin.”

Ignoring the RSI

“The widely tracked relative strength index (RSI) and other momentum indicators like Stochastic are useful in range trade and not necessarily in trend,” said Noble.

Newbies and amateur traders often misread the above-70 reading or over-think the 14-day RSI as a sign of bearish reversal. In fact, the indicator can wait too long than vendors can stay solvent, to paraphrase economist John Maynard Keynes.

Bitcoin daily chart
Source: TradingView

For example, bitcoin increased from $ 11,900 to $ 19,000 in the four weeks leading up to November 24 despite RSD signing over-thinking conditions. A similar pattern was seen on the daily and weekly charts during the 2017 bull run.

“I don’t know if RSI is going to play until you get to one of these [Fibonacci] targets, ”said Noble. “People are having a hard time with bitcoin’s current rally because it is acting as equities. He goes up, he sits and he goes up again. “

Other equipment

Traders can also use Gann fans, which are based on the idea that the market is geometric and cyclical, and there are pivot points to indicate levels of support and resistance.

Keeping a close eye on changes in the open interest options could also help identify price targets.

Open interest Bitcoin options
Source: Skew

At press time, options at $ 20,000, $ 24,500, and $ 36,000 strikes indicate a great deal of open interest or open positions. Bitcoin is currently trading near $ 23,450, having reached a new high of $ 23,77 during European trading hours.