Bitcoin BTC/USD saw whipsaw action during the first part of the 24-hour trading session, falling almost 15% lower between 9 p.m. on Wednesday and 3 a.m. on Thursday before recovering all of its losses and trading higher by midday.
The bounce up higher was expected because Bitcoin is oversold on larger timeframes and in every bear cycle, which Bitcoin entered into in January, counter rallies take place. Although a larger spike to the upside is likely to come over the next few days, Bitcoin is trading in a confirmed and steady downtrend.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart. The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify an uptrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend and descending longer-term moving averages (such as the 200-day simple moving average) indicating a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend the “trend is your friend” until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
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The Bitcoin Chart: Bitcoin has been trading in a steep downtrend since March 28, with the most recent lower high printed on Tuesday at $32,645 and the most recent confirmed lower low printed at the $37,401 level on May 1. On Thursday, Bitcoin plummeted to the $25,338 level, which may be the next lower low, although Friday’s candle will be needed for confirmation.
- If Bitcoin closes the trading session flat or near its high-of-day, the crypto will print a long-legged doji candlestick or hammer candlestick, respectively, on the daily chart, which could indicate higher prices will come on Friday. If the stock falls toward its low-of-day to close the 24-hour session, however, it could indicate lower prices are in the cards and that the lower low hasn’t printed.
- The former is more likely to occur because Bitcoin’s relative strength index has been hovering at 23% and 28% for the last three trading sessions. When a stock or crypto’s RSI reaches or falls below the 30% level it becomes oversold, which can be a buy signal for technical traders.
- Bitcoin’s trading volume at press time was higher-than-average, measuring in at over 57,000 on Coinbase compared to the 10-day average of 34,896 on the platform. This indicates a high level of interest has returned to the crypto.
- Bitcoin has resistance above at $29,321 and $32,200 and support below at $25,772 and $22,729.