Markets

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio