Here we go again. Bitcoin has hit what chartists call a “support line.”
Here is the chart:
“Support” is meant to be a psychological level created by people watching for bottoms in markets. It is meant to be harder for a financial instrument to break down through a previous bottom, than to bounce up from it, so ‘support’ is a potential rallying point.
[Ed note: Investing in crypto coins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The idea is that support and its brother indicator “resistance” become self-fulfilling prophesies. People trade when they see support and resistance, and thereby turn these points into “support” and “resistance.”
I think there is another reason, a line of support or resistance represents a natural equilibrium point that without interference from other factors is “the right price” under certain circumstances. If the market was in a steady state this would be the price naturally. However, factors in markets are forever changing so a financial instrument, whether an equity, bond or cryptocurrency, will oscillate around these levels until a big factor strikes and a repricing event happens.
Skeptics think this phenomenon is just a trick of the mind. The brain likes to spot patterns even in random events and that is why it sees support and resistance levels, remembering when the signals seemed to work and forgetting the signals when it didn’t. It is certainly the case, as with many charting ideas, that a reader can very easily end up chasing all sorts of subtle ghostly signals that don’t exist and end up listening to noise, imagining voices.
However, if you stick to bold signals and keep it simple, technical signals can be very useful, and it is a brave analyst that doesn’t look at charts to see trends and what they suggest will come next.
Rather than see fate in charts I prefer to see forks in the road. For example, if Bitcoin breaks down from these levels I may well see my $2,500 levels or at the very least another–and in my thesis last–leg down for Bitcoin to a base from which the next boom will come.
These are the levels I am interested in:
It is not impossible that a rally from this level could be the big one, but a rally from here is much more likely to continue to repeat the cycle of rally/fall we have been seeing this summer.
A ‘death of Bitcoin’ and ‘blood on the street’ style bottom is one I am expecting and until it comes, I’m not going to be convinced we are into a new cycle. As such, I am still accumulating at these levels but still wait for a big drop, that may never come, before I’ll build a significant position.
If this support breaks this is what I would expect to happen:
Until the altcoins pick up, I feel Bitcoin will be in a bear market and it will take a catalyst to turn that around. The next few days will show whether I’m going to get my buying target this summer. At $3,500, I’ll accelerate my accumulation because sometimes what is a chart bottom passes too quickly to catch, and buying near the bottom is almost as good in the long run as is selling near the top.
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Disclosure: I own Bitcoin.
Clem Chambers is the CEO of private investors Web site ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.