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Anatomy of a BTC trade and next levels to watch
One of my most successful “sniper” trades this year was Bitcoin. I want to walk through what I was seeing, how I traded, and what I see next.
I often mention on Stocktwits how much I love weekly charts with HA candles and horizontal lines. This is the cleanest and simplest way to chart anything. And BTC has been no exception.
We can see in the chart below that $10K was an important price level this year. After the breakout from that level in late July, BTC retested it as new support two months later in late Sept. At that time, BTC sentiment was extremely low. You could rarely find anyone yapping about it.
This made me very interested. But before going long, I wanted to know if BTC was worthwhile trading when the red-hot tech sector (especially the ARKW ETF) had so many excellent setups and much stronger momentum.
So I charted the ratio of BTC:ARKW. Here’s what it looked like in mid-Oct:
You could clearly see a bullish 1-year falling wedge. Falling wedges have a tendency to produce an explosive (albeit temporary) move higher.
Tech had become a crowded trade while retail had forgot about poor old Bitcoin. Meanwhile, the big boys like PTJ, Druck, Michael Saylor, and Jack Dorsey were quietly accumulating/holding large positions. BTC looked ripe for the next rotation in the market.
Upon entry of the trade, my initial target was the former 2017 highs at around 20K. And we got there by late-Nov in record time: just 6 short weeks. BTC:ARKW wedge produced that explosive rip higher.
At this initial target, sentiment got elevated. I took profits on my trading position while keeping my long-term position intact. We saw a quick drop from 19K to 16K on Thanksgiving Day.
This week, BTC broke above this resistance level and a lot of new money has bought that breakout. Mania has returned in full-force again. There’s non-stop chatter on social media. BITW is trading at a whopping 350% premium right now and was as high as 650% at one point this week (link). Meanwhile, GBTC’s premium is at 34% - almost as high as early 2018 (link).
Where can BTC go now? Channel resistance and measured move can take it to just above 26K.
Given the elevated sentiment and the dual target above, I am looking to even trim my long-term holding.