By Trent J. Smalley, CMT
1/ BTC Main
2/ BTCROC
3/ BTCPO
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1/ BTC Main
Beauty is often found in simplicity and I see just that in a current chart of Bitcoin. For as long as I have been a technician, I have probably tried every imaginable indicator, timeframe, and strategy under the sun. As you find your way around the business however, you will learn that less is more, and just enough is the key to a successful trade. I should preface this particular post by saying that for me, Bitcoin is not a trade. I have owned it for over 9 years through the euphoric highs and gut wrenching lows. The longer you own an asset, the more immune you tend to become to both. That being said, in my opinion it is one of the more textbook technical setups as I write this today.
In the main Bitcoin chart you will see a few simple indicators. The green line is a 30 week exponential moving average of price. The exponential moving average or EMA functions by assigning more weight to current prices and exponentially decreasing weights to older prices. It is more sensitive to current price movements and thus reacts more quickly to recent price changes. There is nothing magical about a “30 week” EMA timeframe and depending upon your goals and objectives, you will use something different. For my time frame it works. We can see that since early 2023, the 30 week EMA (green line) has done a fairly good job of supporting price.
You will also notice two other blue lines on the Bitcoin chart. Those are anchored volume weighted average price lines which have been anchored from two points: The past cycle highs set back in late 2021, and near the past cycle lows from late 2022 to early 2023. This is a versatile indicator which simply calculates the average price of a security weighted by how much volume was traded. When you use the anchored VWAP you have the option to decide where you want to anchor the starting point and over time you will find anchor points most relevant to you. I have a tendency to anchor to major highs and major lows which serves as a useful guide as to which investors are currently underwater on their investments versus those who are in the green. In our particular case here, at least for the time being, Bitcoin’s price is above the 30 week EMA, and both the anchored VWAP from the major lows of this past cycle as well as the anchored VWAPs from the previous cycle highs. The trend is in tact and supported by all three.
2/ BTCROC
The second chart is the same as the first but with an emphasis on the indicator located in the bottom pane. That is the rate of change indicator I keep an eye on to see periods of change in an asset’s price. The ROC is by definition a momentum oscillator that some may use as an overbought or oversold indicator, while others may use it as a supporting indicator to trend. I merely use it to watch for periods of action and periods of “sleepy” price behavior. Bitcoin historically has been an asset that is highly volatile and periods of momentum bursts can dramatically swing prices in one direction or another. You will notice that it is often characterized by rapid moves higher (and lower) followed by periods where we have rangebound activity. The ROC will help you keep an eye out for those periods of volatile activity where if you are an active trader, you can capitalize on swings in price.
3/ BTCPO
Finally, for those who are old school price pattern enthusiasts, we have a fairly pronounced cup and handle pattern on our hands. In the Bitcoin price objective chart (BTCPO) in addition to the classic cup and handle pattern, I have found that this particular pattern is quite useful in predicting measured moves. For the measured move analysis you want to take the approximate depth of the cup and add that range to the ultimate breakout of all time highs. For our purposes the approximate depth of the cup is from tops around 68-70k and lows between 16-18k. If you add that range of approximately 54k to 68-70k, the price objective of this pattern would leave Bitcoin’s price around 120-125k.
In sum, with a few simple tools to measure overall direction of trend, areas of interest in price, and measured move analysis, I think Bitcoin is shaped up to achieve that measured move in the coming months. Those who have been around this asset for a while know that buyers tend to “live higher” and that once this current sleepy period passes, a volatile move higher could certainly occur. When price is nearing the 100k mark, get ready for the news stories and headlines and prepare for a free lesson in human emotion. Even if you aren’t involved in Bitcoin it will be a sight to see.
Trent J Smalley, CMTPortfolio Manager JSPM LLC
About this news author
Trent J. Smalley, CMT is a portfolio manager and investment advisor at JSPM LLC. JSPM LLC is a dually registered RIA/CTA. Trent is an active member of the CMT Association and resides in New York City. Learn more at jspmllc.com or omahacharts.com
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Originally posted on October 23rd, 2024
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