On January 12, I wrote about a bullish opportunity in bitcoin.
At the time, bitcoin was trading just above $17,000.
I identified a falling wedge which I believed would break out to the upside, leading bitcoin to a price of at least $24,310.
And that’s exactly what happened…
Bitcoin went on to rally over 40% since I spotted this setup.
Now that this bellwether cryptocurrency has hit my target, it’s time for another update…
Now’s the Time to Take Profits
I’m approaching bitcoin as a trader, not as a crypto “hodler” (holding on for dear life).
And I believe now is as good a time as any to take some profits on this trade.
That’s because there’s are signs that bitcoin’s bullish thrust out of its falling wedge is weakening.
Let’s take a look at bitcoin’s chart…
As you can see, bitcoin broke out of the upper trendline of the falling wedge pattern (blue lines).
Falling wedges are powerful reversal patterns. Once price breaks out of the wedge, it tends to travel swiftly to its target.
In this case, the target I had identified was the 200-day moving average (MA – green line).
On January 12, I wrote that if bitcoin could strongly break above the 200-day MA, then that would open the door to even higher prices.
Bitcoin did, in fact, break above the 200-day MA. But the strength of this rally is quickly fading.
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Now, the Relative Strength Index (RSI) is showing a phenomenon known as bearish divergence.
As a market nears a significant top or bottom, the RSI will often start diverging from the market’s price action.
On January 17, the RSI peaked and started to trend lower, while the price of bitcoin continued to climb higher.
Divergence is typically a leading indicator. It’s a signal to watch out and be careful because prices will eventually follow the momentum indicator.
The combination of bearish divergence as price was hitting its 200-day MA is a warning to bitcoin bulls.
Now is the time to consider taking some profits off the table on this trade.
At the very least, I would consider setting a trailing stop loss at the recent lows of February 13 at $21,380.
Happy trading,
Imre Gams
Analyst, Market Minute
Reader Mailbag
In today’s mailbag, Currency Trader members thank Imre for his latest video tutorial…
Hi Imre, I just want to say thanks for your training video and for being loyal to your commitment.
I’m looking forward to this new investment endeavor and trust that you’ll take us in the right direction. Keep sending some more videos, I find them very helpful.
– Ron B.
Hi Imre! Thank you for your latest tutorial on TradingView, position size, and partial profits. That explains everything very clearly.
– Debra A.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].