Chart of the day: Bitcoin’s rally to new heights will begin with a drawdown

Chart of the day: Bitcoin’s rally to new heights will begin with a drawdown

Last weekend, bitcoin broke the $50,000 mark for the first time since May 11. An excellent result for the cryptocurrency, which was trading below $30,000 as recently as the end of July.

And although it is difficult to name an obvious fundamental catalyst for the rally, many experts attribute the jump to the announcement by PayPal (NASDAQ:PYPL) that the platform will accept this token as a payment tool in the UK.

Whatever is behind this dynamic, the digital currency has been growing for the sixth week in a row. This is the longest “white streak” for the currency since May 2020 (when the eight-week rally ended).

And although in the short term, the digital currency may be waiting for profit–taking, the technical picture hints at bitcoin’s readiness to test record highs over a longer distance.

BTC/ USD – daily timeframe BTC/ USD -daily timeframe

BTC/USD is trading within the boundaries of an ascending channel originating at the lows of June 20. The price has just broken through the second continuation pattern. Pay attention to the fact that the base of the second figure rests on the top of the first, strengthening the momentum for the continuation of the rally.

Nevertheless, bitcoin is forced to obey the laws of market “physics”, which means that before the next jump it needs to take a couple of steps back and take overclocking.

The surge, which took the form of a pennant breakdown, may be followed by profit-taking, which will increase supply and push prices back to the figure. Apparently, it is on this pullback that investors who did not have time to jump on the train to the $50,000 mark will try to join the rally again, pushing prices up again.

The pennant formed right above the 200-period DMA, reflecting its significance as a level of technical pressure. The upward slope of the curve demonstrates an increase in price dynamics compared to the 200-day average. The duration of the period reflects the significance of this movement, showing its bullish mood.

50 DMA crossed 100 DMA, which crossed the previous falling flag, demonstrating that this mark is an important boundary. The price managed to overtake the average price over the last 50 days and cross the 100-period. This indicates that even the smoothed price for the last 50 days is growing faster than the price for the last 100 days.

An ascending channel by definition indicates an upward trajectory of movement. However, even a growing market tends to adjust as part of profit-taking.

The ROC indicator has been forming a positive divergence since the May lows, and the fact that the indicator is testing the bottom of its ascending channel makes a rebound more likely, rather than a further fall. But while the descending ROC channel (highlighted in red) remains in force, the probability of a sale cannot be excluded (especially considering that it was formed as prices rose).

RSI retests the vertex of a symmetrical triangle. While an upward breakdown will signal further growth, the indicator itself is overbought and may retest the bottom of its channel as prices correct.

Trading Strategies

Conservative traders should wait for a pullback that will allow the bulls to prove their market power at levels where the 200-day moving average intersects with the previous model and the bottom of the ascending channel.

Moderate traders will also wait for a fall to minimize the stop loss of a long position.

Aggressive traders can play against the trend and sell counting on a correction from the psychological level of 50 thousand dollars (which is also the April minimum).

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