With Bitcoin Price Headed to $133,000, Here's Where to Buy
Bitcoin investors can use this strategy to trade cryptocurrencies as the price heads toward all-time highs.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
What’s the biggest mistake that investors make when it comes to trading bitcoin?
In the U.S., most investors are focused on stocks. Most of the knowledge and information they possess about trading involves either stock indexes or individual stocks.
Bitcoin isn’t a stock, it’s a cryptocurrency. Bitcoin and other cryptocurrencies are more closely aligned to the currency market than the stock market. Currency trading isn’t similar to stock trading, as the two trading vehicles aren’t comparable and require different approaches.
Where Bitcoin Is Headed
Bitcoin recently formed an A-B-C-D pattern. This old-school pattern, which began to form in April, projects bitcoin to the $133,000 area (point D). According to the chart, bitcoin could reach that level within a month.
How to Trade Bitcoin
One of the most advantageous aspects of the currency market — and the crypto market — is strength of trend. I’m sure you’ve heard the saying, “the trend is your friend.” This is particularly true when trading currencies and cryptocurrencies, like bitcoin. This means trading bitcoin requires a trend-following approach.
When trading a trend, one of the biggest mistakes we can make is to get out too soon. That’s because we never know how long the trend will last.
To account for this, we’ll build a trend-following strategy that doesn’t include a target. Instead, we’ll trail a stop. When the trend falters and the price breaks down, the stop will be hit, and we'll exit the trade.
The Entry
How will we enter the trade? We’ll buy bitcoin when the price makes contact with bitcoin’s 10-day exponential moving average, or EMA. Strong trends tend to climb above the 10-EMA, so a pullback to that indicator will create a buy signal.
As of Monday evening, bitcoin’s 10-EMA (blue) was near 114,900. That’s our entry point, as of Monday evening.
Moving averages move, so we can’t place a GTC (good ‘til cancel) order at that entry price. Instead, we’ll have to be nimble. We can use day orders only. and those orders can be adjusted during the trading day to keep the entry as close to the 10-EMA as possible.
The Stop Loss
The formula for the stop loss will incorporate ATR (average true range), a measuring stick for volatility. As of Monday evening, bitcoin’s ATR stood near 2830 (bottom right of chart).
Take that daily ATR figure (2830) and divide it by 2, for a result of 1,415. Then subtract 1,415 from the entry of 114,900 (blue), and the result is a stop loss of 113,485 (red).
Risk Management Hack
If the price moves in our favor, we’ll raise the stop by keeping it below the 10-EMA by half of the daily ATR. We will never lower the stop under any circumstances.
Here’s an example: a recent currency setup using the euro/Japanese yen currency pair. Note how the stop continues to rise (red numbers) as the exchange rate maintains its position above the 10-EMA (blue).
By following this strategy, the potential gains are theoretically unlimited, since there is no target. However, the losses are limited by the stop loss. This creates a low-risk/high reward scenario. It’s a great way to trade for those who wish to participate in bitcoin's gains while minimizing any potential loss.
At the time of publication, Ponsi was long BTCUSD and EURJPY.
