Bitcoin (CRYPTO: BTC) was trading about 2% lower on Thursday as both the cryptocurrency and general markets experienced a continued pullback off their recent highs.
Bitcoin reached a high of $48,240 on Monday — a price the crypto hasn’t traded at since Dec. 31, 2021 — while the S&P 500 hit the 4,637.30 mark, which it hasn’t seen since mid-January.
The pull back in Bitcoin was due for a number of technical reasons and it hasn’t negated the longer-term uptrend the crypto has been trading in since March 14.
In an uptrend, the higher highs indicate the bulls are in control while the intermittent higher lows indicate consolidation periods. Traders can use moving averages to help identify an uptrend with rising lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term uptrend and rising longer-term moving averages (such as the 200-day simple moving average) indicating a long-term uptrend.
A stock often signals when the higher high is in by printing a reversal candlestick such as a doji, bearish engulfing or hanging man candlestick. Likewise, the higher low could be signaled when a doji, morning star or hammer candlestick is printed. Moreover, the higher highs and higher lows often take place at resistance and support levels.
In an uptrend the "trend is your friend" until it’s not and in an uptrend there are ways for both bullish and bearish traders to participate in the stock:
- Bullish traders who are already holding a position in a stock can feel confident the uptrend will continue unless the stock makes a lower low. Traders looking to take a position in a stock trading in an uptrend can usually find the safest entry on the higher low.
- Bearish traders can enter the trade on the higher high and exit on the pullback. These traders can also enter when the uptrend breaks and the stock makes a lower low indicating a reversal into a downtrend may be in the cards.
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The Bitcoin Chart: Bitcoin reversed into an uptrend near the $37.560 mark after printing a bullish double bottom at that level on March 13 and March 14. The crypto has since made consistent series of higher highs and higher lows, with the most recent higher high printed on Monday and the most recent higher low formed on March 26 and the 44,091 level.
- If Bitcoin closes the 24-hour trading session near its low-of-day price, it will print a bearish Marubozu candlestick on the daily chart, which could indicate lower prices will come again on Friday. As long a continued pull back doesn’t push the crypto down below about $44,100 the uptrend will remain intact.
- Technical traders may have seen the retracement coming because when Bitcoin reached its March 28 high, the crypto rejected and wicked from the 200-day simple moving average. The 200-day SMA is considered to be a bellwether for securities, where a stock or crypto trading above the area is considered to be in a bull market whereas a stock or crypto trading below the level is considered to be in a bear market.
- Bitcoin’s relative strength index (RSI) was also measuring in high at about the 71% mark, which indicated a pullback would come. When a stock or crypto’s RSI reaches or exceeds 70% it becomes overbought, which can be a sell signal for technical traders.
- If Bitcoin is able to bounce up over the coming days before negating the downtrend, the pullback may serve as a way to gain enough power to cross over the 200-day SMA on the next attempt.
- Bitcoin has resistance above at $48,475 and $52,100 and support below at $45,814 and $42,223.
