Experiencing Bitcoin FOMO? Read This

The Fear of Missing Out, also known as FOMO, has bankrupted more traders than I can count.

Giving in to FOMO usually ends badly. It’s simply human nature to buy tops and sell bottoms in the market.

In fact, this is one of the most frustrating cycles that amateur traders experience.

Amateur traders consistently find themselves getting in on market movements just as they’re about to end.

This leads them to believe the market is actively conspiring against them, because seemingly the moment they push the buy button the market starts to sell-off.

The cure for FOMO is learning to recognize when a move is getting exhausted and is ready to reverse.

Today, I have an example of this in bitcoin.

I last wrote about bitcoin on February 23. At the time, I suggested that traders should consider closing out their positions as a pullback was well overdue.

Sure enough, bitcoin topped out that same day and pulled back by over 22%.

Since then, bitcoin has gone on to rally almost 48% in less than two weeks. That’s truly an incredible move, and if you missed out on this melt-up, you might be suffering from a bit of FOMO right now.

Let’s look at a current chart of bitcoin so you can see why buying right now is likely a mistake.

With a bit of patience, it’s likely you’ll be able to buy bitcoin at a relative discount.

There are two key features to this price chart:

• We have the 20 and 50-period moving averages (MA). These two technical indicators do a great job of identifying the intermediate-term trend.

  If the market is trading above both MAs, and they are both sloping upwards, that’s a great sign that the trend is to the upside.

  As you can see, that’s exactly what’s going on with bitcoin right now. This information tells me that so long as the MAs are in this condition, I want to be a net buyer of bitcoin and not a seller.

  Here’s another important observation we can make using the moving averages… Notice how prices have pulled away from both MAs.

  When prices pull away from the 20- and 50-period MAs, that’s a sign that the market’s move is getting exhausted, and we will eventually see the market pull back to its moving averages. This is known as mean reversion.

• The second important feature is the bearish divergence between the Relative Strength Index (RSI) at the bottom half of the chart and the price of bitcoin.

  The RSI measures momentum in the market. Whenever it diverges from the price action, that’s a very strong sign that the market could reverse.

  Notice how the RSI peaked at the beginning of the year. At the same time, the price of bitcoin kept steadily climbing.

  This divergence between the RSI and the price of bitcoin is a warning signal that we are likely due for a sharper pullback.

The next major objective for bitcoin bulls is to test a resistance zone roughly between $30,000 and $32,000. This would bring bitcoin back to where it was trading in June 2022.

To take advantage of this opportunity, it would be ideal for bitcoin to pull back to its 20- and 50-period moving averages. This would afford traders a great price point to get back into a still developing uptrend.

That means bitcoin could trade as low as around $24,000 before starting its next major leg higher.

Happy trading,

Imre Gams
Analyst, Market Minute

What are your thoughts on bitcoin? Are you bullish, waiting for the next breakout… or skeptical and bearish?

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].