Bitcoin Crosses $10,000, What’s Next For The Market?


Dark Cloud Cover

I’ve said it once and I’ll say it a thousand more times before I am through. The cryptocurrency market, when you cut out all the noise, is purely technical. This doesn’t make it easy to trade, far from it, traders who rely too heavily on those signals or expect too much to come from them are often burned. Today’s news is that Bitcoin crossed the $10,000 mark for the first time in months. When it did it threw off a very technical signal.

The caveat is that the signal is bearish. A Dark Cloud Cover. A sign of reversal within a market. What could it mean? Is the rally in Bitcoin over? I don’t think so but let’s have a look.

What is a Dark Cloud Cover? A Dark Cloud Cover is a bearish candle that forms at the top of an uptrend. It happens when there is a green or long green candle followed by a red candle. The red candle must open at the high or higher of the green candle and extend down to below its low. In terms of bar-charting, this is also called an Outside Day and shows bearish behavior overtaking the bulls advance. What it means is a potential for reversal but it doesn’t give much in the way of other signals or targets.

What does reversal mean? Is Bitcoin going to start falling and enter a downtrend? Maybe, but probably not. A market reversal may result in a FULL REVERSAL that puts prices in a down trend. What it is more likely to mean, in this case in particular, is a CHANGE in trend. A change in trend could be from up to down but, more often than not, it will be from up to sideways. Bitcoin is more likely to have entered a consolidation than not.

What is consolidation? Consolidation, within an uptrend, a period and price level at which bulls and bears are evenly matched. Buying and selling may move price action sideways for days or weeks until one side or the other gains the upper hand. If the bulls gain the upper hand we’ll see a continuation of prices, if not BTC may trace out a full reversal pattern and begin to move lower.  In this case, Bitcoin and the cryptomarket in general have tailwinds and catalysts to drive prices higher. These include BTC’s upcoming halving and Ethereum’s recent ETH 2.0 announcement.

How do you trade this? Very carefully, the consolidation has just begun so we need to let it set some parameters for trading. Near term traders may want to attempt puts at resistance but the better play here is calls at support. Support targets are $9750, $9,600, $9,200 or the short-term EMA. The prudent move is to wait for a bullish candle to form at one of these targets and that is where the real trick lie. Support may be evident at ALL of these targets but you won’t know for sure until prices begin to move higher. The first recommendation is waiting for candles to close before buying a support bounce, an early sign of support can easily reverse in intraday action. The second is to use small positions and pyramid into the longer-term trade.