Two Ways To Play A Potential Breakout In BTC/USD
As I write, Bitcoin against the U.S. Dollar (BTC/USD) is poised at levels that could decide the direction of the currency pair for the next few weeks, maybe even longer. BTC/USD rallied last week to take it above the $400 level, but retraced at the week’s end to fall back to around $375-$380. The $400 mark itself really has no significance except as a round number, but the next move from here will give an idea as to the nature of the rally; was it just another short squeeze or does it break the long-term downward trend?
Breaking that trend depends on establishing a new pattern of higher lows and higher highs. If BTC/USD holds above the $350 point from which the rally was launched, then it clears the way for that pattern to take hold. In that event a move up through the high achieved in the rally, around $450, is to be expected. Should we break back down below that $340-$350 base, however, it would indicate that what we saw was just a temporary aberration and the bear market is intact.
This leaves longer term swing traders with a choice. Depending on what your platform allows you to do it may be possible to set up a kind of virtual straddle to take advantage of a move in either direction. Placing stop loss orders at, say, $410 and $350 would leave you positioned with the trend if either of those levels breaks and the orders are triggered. Alternatively, if you would rather trade from a view, those levels provide logical, relatively inexpensive stop loss levels if you were to take a position here.
If forced to choose what position to take, I would favor the bull case in this scenario for several reasons; first and foremost because of where the other part of the pair, the U.S. Dollar is situated.
The 1 month chart for the Dollar Index shows that a top has been found at 88 and given the overcrowded nature of the “long dollar” trade, any reversal is likely to be quite swift. A lower dollar equates to a higher value for anything traded against it and thus would put upward pressure on BTC/USD. That could well be the short squeeze to end them all.
From a technical perspective, too, a long position offers a better chance of success. The recent consolidation below $400 has resulted in multiple quite strong points of support on the way down. The upward path, on the other hand, would see resistance at around $410 and last week’s high around $450, but the path to $500 looks otherwise fairly low resistance.
The position of the dollar from a broader perspective and upwards being the path of least resistance would suggest that long BTC/USD would be the favored position at these levels, but flexibility is the key. This is a case where a move in either direction is possible, so it is essential that traders are prepared, at least mentally, to take a loss or even reverse the position if things don’t work out. Whatever happens, it looks as if those that follow or trade BTC/USD are in for a fun few weeks as the year draws to a close.