*I don’t trade cryptocurrencies. The best strategy for trading a crypto bubble is a classic trend following strategy.
Here’s my outlook for various cryptocurrencies based on the aforementioned strategy.
Discretionary outlook based on charts
- Don’t chase the bounce in Bitcoin, Bitcoin Cash, & Ethereum
- Don’t catch the falling knife in Ripple, Litecoin, Dash, or IOTA
3:26 pm. Don’t chase the bounce in Bitcoin, Bitcoin Cash, & Ethereum
Bitcoin is trying to reclaim its 200 daily moving average. All 3 of these cryptocurrencies are very oversold.
Bitcoin and other cryptocurrencies will eventually make a big bounce. But where? It could be here, or it could be after Bitcoin falls below $5000. The point is, nobody knows when cryptocurrencies will make a bear market rally. Trying to catch the falling knife in a bear market is extremely dangerous. Bear markets are much harder to trade than bull markets.
Hence, trend followers should wait until Bitcoin makes a new all-time high before buying. Otherwise Bitcoin’s bubble is officially dead.
These cryptocurrencies are still making lower highs and lower lows. There isn’t even the slightest sign of a sustainable reversal yet.
4:30 am. Don’t catch the falling knife in Ripple, Litecoin, Dash, or IOTA
Ripple, Dash, and IOTA have broken below their 200 daily moving averages. Litecoin has reached its 200 daily moving average.
- All 4 of these crypocurrencies are very oversold.
- All 4 of these cryptocurrencies have a bearish pattern of lower highs and lower lows.
A lot of traders have gone long at Bitcoin’s and alt-coin’s 200 daily moving averages. One of the best crypto traders I know expects Bitcoin to bounce to $12,000. I don’t think going long is such a good idea.
If Bitcoin’s bubble is over, then there’s no telling how low cryptocurrencies will go before they make a tradeable bounce. Catching the falling knife in a bear market is EXTREMELY DANGEROUS, especially since the decline so far has been rather orderly. There has not been a massive one day crash that’s typical of most bear market downlegs. If Bitcoin and other cryptocurrencies had a massive one day crash (e.g. >33%), then I would expect a sizable bear market rally.
Remember: RSI can fall to single digits in a bear market. Oversold can become more oversold.
Cryptocurrencies might make a bear market rally right now, or they might continue to fall. The risk:reward profile does not support bulls right now. It’s a 50-50 bet.
Read Cryptocurrencies on February 5, 2018.