Managing Editor’s Note: Today, we’re handing the reins over to colleague Larry Benedict – a market wizard and legendary hedge fund manager.
Today, he’ll share something both he and Jeff agree on… and that’s the secret to trading success doesn’t have to be complicated. Using some of the basic indicators strategically is the way to reliable gains.
Here’s Larry…
The secret to trading success doesn’t rest with complicated technical indicators.
I’ve been an active trader for over 40 years. And one of my most effective trading strategies has been using basic support and resistance levels.
That includes moving averages (MAs).
For example, you can buy when a stock crosses above an important level such as the 50-day MA. Or you could bet against a stock when it crosses below it.
But if you use MAs, chances are you’re only focusing on one part of the equation. That means you’re missing opportunities to capture big gains.
So today, let’s look at another strategy for using simple MAs to generate trading signals.
I’ll also tell you why you want to leverage this technique for trading Bitcoin.
Big Moves From Failed Crossovers
MAs are a simple yet effective trading tool. That’s why they’re popular with new and experienced traders alike.
One common strategy uses MAs as support and resistance levels, like when a stock price rebounds off a key MA.
A crossover above or below a MA can signal changes in the price trend as well.
But there’s one MA strategy that goes unnoticed by many new traders. And that’s with a failed crossover.
That’s when a stock tries to cross above an MA and then immediately reverses lower.
A failed attempt to retake a key level can lead to major reversals.
And some stocks and cryptocurrencies have a reputation for failed crossovers.
That includes Bitcoin. Look at the price history of Bitcoin, and you’ll notice a recurring pattern.
Bitcoin likes to “fake out” traders who are using simple MA crossover strategies, such as buying a cross above the 50-day MA.
But Bitcoin often reverses sharply lower after crossing the 50-day MA. Take a look at the chart below to see what I mean:
That’s the chart of Bitcoin during a stretch in 2022.
There are three instances when Bitcoin attempts to cross above the 50-day MA (the blue line).
But each attempt at a cross above failed at the arrows, leading to quick declines.
So with Bitcoin’s MA habits in mind, you should be following the crypto closely.
Bitcoin has been showing more choppy price action recently around the 50-day MA. That could be setting up another breakdown.
Bitcoin Is Setting Up a Reversal
Bitcoin peaked near $73,000 back in March. Ever since then it has been whipsawing traders with sharp swings in either direction.
But that price action is taking place right around the 50-day MA. And now it’s setting up an interesting pattern.
Take another look at Bitcoin:
Since May, Bitcoin has tried to sustain a cross above the 50-day MA on three occasions. The first couple of attempts at points A and B ultimately failed and led to a quick pullback in Bitcoin.
And now you can see that there’s another failed crossover potentially developing at point C.
At the same time, note that Bitcoin has been in a downtrend since peaking in March. That means lower highs and lower lows in the price trend.
And the Relative Strength Index (RSI) is staying below 60. The 60 level often serves as an overbought area during downtrends.
Altogether, watch out for signs of weak price action coupled with another failed cross above the 50-day MA.
That would mean there could be more downside in store for Bitcoin.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict