Wed. Oct 27th, 2021

I recently recorded a “Choose Your Own Adventure” style approach on Bitcoin. I set out four different scenarios for this cryptography, from the huge bullish movement to 65,000 to the ultra bearish scenario to 24,000.

If you’re interested, you can watch the original video here and be sure to comment on which scenario you see most likely and why.

I pledged to follow this video with my vote and to explain the technical justification and implications of this choice. Given the choice of these four possible outcomes, I would vote for scenario no. 2. This would mean that Bitcoin would remain in an overall range between 42,000 at the lower end and approximately 54,000 at the upper end.

Here’s why.

First, let’s start with the overall trajectory of Bitcoin over the last twelve months.

By August 2020, Bitcoin was shrinking downward to re-test support for the big round of 10,000. This level served as a springboard, as the price jumped up to reach the level of 42,000 in January 2021. After a brief decline to about 30,000, Bitcoin continued its upward rise to its maximum end just below 65,000.

Look at the two levels, 30,000 and 42,000, as they will be back in play soon.


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After reaching 65,000 in April, we saw an initial move below 48,000, followed by a significant drop to find support at 30,000. This downward move, scored by a lower high in early May, was an indication that Bitcoin had gone from an upward phase to a downward phase. This support level of 30,000 remained significant until May, June and July, as Bitcoin rose steadily from this price point. This period is what I would consider a phase of digestion or consolidation, as cryptography remained limited to 42,000 serving as the upper limit.

In the last four weeks, Bitcoin has managed to definitely get out of this side range, suggesting a transition from the consolidation phase to another accumulation phase.

Now let’s review the chart with some additional tests.

Scenario no. 2 I mentioned earlier is a scenario ranging from 42,000 to 54,000. The reason I didn’t choose scenario no. 3 o núm. 4 (the most bearish scenarios) is because the break above 42,000 was key, as well as the highest low, around 38,000, in early August.

The trend seems positive until proven otherwise.

Why not the very bullish scenario of trying the historical highs again? Actually, this would be my second choice, but what keeps me from choosing is a simple measurement technique that uses the trading range from May to July. Bitcoin trading from 30,000 to 42,000 means a range of about 12,000 points. If we add this range to the breakout level, we will reach a positive target of 54,000. I was able to see that becoming a positive target involves a depletion of buyers and / or a flow of sales pressure that would result in minimal upward tracking.

The real point of this exercise, however, was to illustrate the advantages of considering alternative scenarios. We often get caught up in a specific narrative, in a particular thesis, in a particular craft. Markets rarely do exactly what we expect. Investing involves considering different scenarios, clearly defining your risk / reward, and following what the evidence tells you. At the moment, it is telling me that the path of least resistance for Bitcoin is higher.

Do you want to digest this article in video format? Here you are!

RR # 6,

Dave

PS- Are you ready to update your investment process? Check out my free course on behavioral investing!


David Keller, CMT

Head of market strategy

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. Ideas and strategies should never be used without first assessing your own personal and financial situation or without consulting a financial professional.

The author has no position in the titles mentioned at the time of publication. The opinions expressed herein are solely those of the author and do not in any way represent the opinions or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT, is chief market strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV and relates mindfulness techniques to investor decision making on his blog, The Mindful Investor. David is also president and chief strategist of Sierra Alpha Research LLC, a boutique research company dedicated to risk management through market awareness. It combines the strengths of technical analysis, behavioral financing, and data visualization to identify investment opportunities and enrich relationships between advisors and clients. Learn more

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