Bitcoin has gone up 86% since November 2022. Why would traders take (at least partial) profit?
Traders who have been profitable over a protracted rise, such as early Bitcoin buyers before an extended rally, may choose to sell or exit at least part of their position at a price deemed a "junction" in terms of technical analysis for a variety of reasons:
- Profit-taking: Following big gains, traders may elect to realize some of their profits by selling a portion of their holdings. This is a wise decision since it lets them to lock in profits while reducing their risk exposure, especially if they feel the market will shortly reverse or consolidate.
- Technical analysis sometimes entails identifying significant resistance levels or price areas where selling pressure is expected to intensify. Traders may choose to sell at these points in anticipation of a possible reversal or slowing of the market's rising trend.
- Selling at a technical crossroads might be part of a trader's overall risk management strategy. Traders can decrease their exposure to probable market downturns by taking some profits off the table while still holding a position in the asset if the rise continues.
- Psychological biases: Market participants frequently encounter psychological biases like as FOMO or the endowment effect, which can influence their decision-making. By establishing a fixed exit point based on technical analysis rather than emotional causes, selling at a junction can assist traders overcome these biases.
- Portfolio rebalancing: To maintain their target asset allocation or risk exposure, traders and investors may need to rebalance their portfolios on a regular basis. If a specific asset, such as Bitcoin, has fared very well and and has grown to account for a larger portion of the portfolio, selling some of it at a technical crossroads can assist in returning the portfolio to its target allocation. This procedure aids in maintaining the desired risk profile and diversification strategy.
- Following trends and trading strategies: Many traders base their trading methods on technical analysis, and these systems may specify particular entry and exit locations based on chart patterns or indicators. As a result, selling at a technical crossroads could simply be part of a trader's prearranged strategy.
- Market liquidity: Trading volumes tend to grow at junction points due to increased interest and convergence of diverse market participants. Because of the improved liquidity, traders may be able to execute larger orders without materially affecting the market price.
- Predicting market reactions: Skilled traders are aware that other market players utilize technical analysis and may take similar measures. Traders may seek to forestall future selling pressure from other market participants by selling at a junction, securing a better exit price for their position.
Bitcoin technical analysis (video): Bears are probably coming
- The latest Bitcoin boom has piqued the interest of crypto traders and Bitcoin purchasers all over the world. With an 86% increase since November 22, reaching a peak of roughly $27,840, many traders are wondering if it's time to take profits.
- Profit-taking appears to be on the horizon, according to the following BTCUSD technical analysis.
- The trading channel presented within the technical analysis video, with enought touchpoints on both the upper and lower bands suggests that Bitcoin is nearing a potential turning point. The anchored VWAP (Volume Weighted Average Price) from the November low has also played an important role in maintaining the price during past downturns, and now, price might be soon reacting to its 2nd higher standard deviation (some algos will be playing this).
- As Bitcoin approaches the channel's upper band and a possible wedge pattern, traders may see this as an opportunity to lock in some profits before the next move. A likely short-term price fall goal is about $24,300, which corresponds with a pivot high in August 2022.
- But, if Bitcoin continues to rise and reaches about $29,800, the current gloomy stance may need to be reconsidered. A daily candle close over $29,350 could indicate that the rally will continue and that the $30,000 level will be tested.
- To summarize, current technical analysis implies that profit takers may soon enter the market, resulting in a short-term decrease in Bitcoin's price. Traders should keep an eye on important levels and be ready to change their strategy as the market evolves, according to the analysis within the above bitcoin technical analysis video. Trade BTCUSD at your own risk and visit ForexLive.com for additional views.