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Bitcoin Pulls Back – Time to Buy the Dip by tennant.graeme on TradingView.com
From 24 June to 24 July, the Bitcoin price increased by almost 50%. That’s an impressive move in anyone’s books, so it was always likely that the bulls would need to take a breather at some point.
Personally, I expected this to come around $7500 mark, but instead the price broke through this level to trade as high as $8500. This move through $7500 was also a break of a head and shoulders pattern as illustrated in the graph with the neckline in pink. However, this initial impulsive move soon ran out of steam and after some sideways action we saw a sharp sell-off back to $7500.
As can be seen $7500 is a key level – it was broken after being tested a couple times on the way up and now I expect it to act as support on the way down.
Reasons to believe that $7500 will hold as support:
- Blue line is a long-term trendline which was broken and now acts a support
- Pink line is the head & shoulders neckline extended which now acts as support
- The 0.382 Fibonacci level is a high probability turning point for a short-term correction in a bull run
- The RSI is oversold on the 4-hour chart (red circle) indicating that the market is oversold
All of these factors are converging in the area highlighted by the green oval. Technically, we remain in a bull trend as long as we hold above this level.
Taking this all into account, I have entered into a long trade:
- Entry – $7500
- Stop loss – $7175 (set as a break below the right shoulder)
- Take profit – $8320 (close to a retest of previous highs)
Risk/ reward ratio – 1 : 2.5
A risk/ reward ratio of 1 : 2.5 means that for every $1 I risk in the event I am wrong, I can potentially make $2.5 if I am right.
If we break below the right shoulder, then that means that the price has made a lower high and a lower. This signals a continuation of the macro bear trend and invalidates this rally as the start of a new bull market. Don’t get caught long if this scenario plays out.
Remember that the goal of trading is to minimize your losses when you are wrong and to maximize your gains when you are right.
Happy trading!