Bitcoin could prove to be the perfect market for technical analysts

Could the criticism levelled at bitcoin ultimately prove the making of it as an investment vehicle for active traders?

Bitcoin logo
Source: Bloomberg

To many, bitcoin is seen as a speculators market, a pseudo-currency, a passing fad and an experiment which will pass in time. This may be the case, and I am no more or less a proponent for the crypto-currency than the next trader who is used to trading something that has an inherent underlying value.

However, this inability to properly derive an underlying value to each bitcoin through the process of fundamental analysis should not be seen as a weakness. In fact, this makes bitcoin one of the best markets to trade.

There is no doubt that the news stories and scandals that have driven previous volatility are largely a thing of the past, the new currency experiencing its fair share of hurdles on the way to becoming widely accepted within the wider financial community. However, with much of this behind us, the market has become one of relative tranquility in comparison with the global indices and FX markets which bounce from one crisis to another.

Even technical traders will typically watch out for fundamental releases as these will provide unexpected movement within a chart that can counteract even the most well thought out and perfectly set up trade. However, imagine there are no fundamental releases to watch out for and instead you simply have to trade the charts as you see them. That is bitcoin.

From a technical standpoint, the bitcoin market has provided a long-term saucer formation, where both peaks and troughs gradually fall and then rise. The fact that the oval shape fits so perfectly into the peaks is a testament to the consistency of the market.

This saucer provides a perfect visualization of why this market could be a very good one to trade. While traders of EUR/USD or FTSE are struggling to keep up with every associated headline, from Greece to the Bank of England, bitcoin’s relative isolation means that the technical can take precedence and this allows for a long-term stable formation such as the saucer to form.

The sell off seen in the past week comes following a failed attempt to create a new high. And we must see a move back above $311.92 for the bullish sentiment to continue. Given the trend coming into this current position, I remain bullish for the resolution of this current question mark.

However, that inability to break above $311.92 is a warning sign and in particular, a move below $272.11 would warn of a possible reversal in play. Thus as long as price remains above $272.11 I remain bullish and watch out for a move back to $311.92.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.