Tumbles close to 9% in trading today. Traders will be watching MA for bias clues now

Yesterday, bitcoin was at a key crossroad technically (see post here).

  • The cryptocurrency had been consolidating after peaking last week on Friday
  • The price was trading above and below the 100 and 200 bar MAs on the 5-minute chart
  • The 100 hour MA was catching up to the price, bringing it in play from a technical perspective.

As outlined in the post from yesterday,

"Consolidations allow for the market to digest moves and decide whether continue or not. The price action in the short time period charts can see the price waffle above and below the moving averages. However, those MAs can also tell a bullish or bearish bias story. Right now, for bitcoin, we are at a key crossroad. The buyers and sellers will decide. The good news is risk (and bias) can be defined and limited at the MA lines. So it is time to listen to the market."

What happened?

Looking at the 5-minute chart above, the buyers tried to break above the 100 and 200 bar MA on the 5-minute chart (green circle 3 and 4 in the chart above) in the late NY session. They tried again in the early minutes of the new trading day (green circle 5), but sellers leaned and the price continued the corrective move lower. After the price corrected to the 100 bar MA (blue line) and held at blue circle 6, the selling intensified.

The price fell to a low of $5109. The high at green circle 5 reached $5612. So the fall was about a $500 on the day (or -8.9%). Trading bitcoin requires paying attention to the technicals as risk can be quite substantial.

Looking at the hourly chart, the 100 hour MA was rising and catching up to the price yesterday. Today, that MA line was broken at the $5530 level and then retested at 5552 level on the correction (rise up to blue circle 6 on the 5-minute chart). When that 100 hour MA held the correction higher, it was an invitation to sell. The flood gates opened to the downside.

What now?

Looking at the hourly chart, the fall took the price below the 200 hour MA at $5156.37 currently (it is moving higher). That MA was tested back on October 5th and held. It helped to keep the bullish bias.

Today, although the price moved below that 200 hour MA line (more bearish) we are currently trading back above that key MA line. As a result, for traders we are at another technical crossroad for the pair.

  • Stay above the 200 hour MA and we should see short covering/new buying return.
  • If we break below,however, expect a further corrective move lower. The tops at $4921 and $4926 would be the next targets on a break lower (see hourly chart above and blue circles).

As mentioned in previous posts, trading the crytocurrency requires paying attention to the technicals. The volatility is just too great. So the traders out there will tend to define and limit risk against key technical levels. To ignore the clues opens yourself up to 9% swings. Being on the wrong side can be detrimental to your trading account - especially if the bias swings dramatically.

So be careful. Be disciplined and listen to what "the market" is saying.