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.

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