BTC Update 13 March

Thursday 13 March 2014

G'day!  In our last post bitcoin was trading at around $640 (BitStamp) and we noted that this was becoming a key price point.  And so it has turned out, with the market forming an ever tightening consolidation in this area.  However the market is finally approaching a key decision point, in our opinion, so it is time to re-assess where we stand and what we think could happen next.

Let's look at the chart...

We want to draw your attention to the very right hand limit of this chart where you will see that the market has, for the last 16 hours, been leaning on channel support as it becomes co-incident with horizontal support at $640.  The significance of this test should not be underestimated.  And now finally, we can see that the current, open bar, has bumped back up to above $640.  This is also significant as it represents - in our view - bitcoin bulls last chance to re-ignite the rally.

This is, as they say, crunch time.

If the current 4hour bar closes at the top of its current range - or better still, we make new highs - this will represent a hugely bullish signal that is likely to pull sufficient new buyers into the market to fuel an upside breakout that ought to carry the market back up to $710 at the least.

If, on the other hand, price action reverses to the extent that the current 4hour bar closes below its open (that is to say, in the red) it is probable that sufficient active traders will pull their money back off the table to provoke a reversal, with the potential to wrench the market back down to support $535, with a venom.

In our view it really is as simple as this, and that is what makes this such a powerful BUY signal.  We really are at the outer limit of the current, bullish context.  If the market is going to 'get it's skates on' it is going to trigger from right here and right now.  The current price therefore reresents a bargain.  Particularly since it really isn't going to cost a trader very much to find out whether they are wrong, meaning that a tight stop loss can be placed against the entry price.  What this amounts to is a great traders equation with potential profit a significant multiple of potential loss.

For this reason we have already increased our exposure to bitcoin, with a tight loss stop just below the market.  If we are proven wrong we will be just $20 in the hole per bitcoin.  If, on the other hand, we are right, we will be $60 per bitcoin in the black and in a position to take profit, tighten stops or begin scaling back out.  

I want to stress that we have no more insight than you as to how this punt will end. We simply estimate that the balance of probabilities currently favour the upside, and since the traders equation stacks up so sweetly, we are prepared to take the trade.

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