Looking at the daily bitcoin chart you can see that bitcoin dropped below 8000 but couldn't close below it. It looks like the price of bitcoin stopped dropping and has found some ground to stand on.
Why at this level you might ask? Because of multiple reasons.
1. Look at the black trend line that has functioned as resistance before the big run up.
Bitcoin tried to break that resistance numerous times (blue points) but failed. When it did crush that black resistance line it went for a home run and reached an all time high of approximately 20k.
Support becomes resistance when broken and resistance becomes support when broken and that's what's happening here. That same black line that used to be resistance is now acting as a support level.
]If you want to know more about support and resistance you can read this article.
(This only works because people believe it works. Technical analyses is nothing more but a self fulfilling prophecy).
2. The areas full with color are called the fibonacci retracement levels.
When an asset makes a new high it often experiences a pullback to one of these fibonacci retracement levels before it continues any higher.
So these levels act like support levels and as you can see the btc price dropped to the 61.8 fibonacci level but didn't dropped any further. Again this level provided support!
Does this mean this is a guarantee that the btc price won't drop any further? Ofcourse not. Support and resistance areas are just areas with a lot of buyers or sellers which cause the momentum to (temporarily) stop.
If there are not enough buyers (on support levels) or sellers (on resistance levels) the previous trend will continue after that brief stop.
If you want to know more about fibonacci retracement levels i suggest you read this article.
3. The 200 EMA line
When you look at the chart you'll see a red line which is called the 200 exponential moving average. This line, as well as the 100 and 150 exponential moving averages often act as support levels.
The reason for this is because traders use those exponential moving average lines as entry targets because they offer a good risk/reward ratio.
To keep it simple; a 200 ema line on the daily chart shows the average price of the asset during the last 200 days. If the actual price of the asset keeps above this trend line you could say it's still bullish compared to the average price of the last 200 days.
If the actual price of the asset drops below that 200 day average it means that the price is bearish compared to the last 200 days. This often indicates a reversal to the downside.
So you could say that those lines act as ''ground zero'' for a bullish trend and that's the reason why traders love to step in at these area's. If they are wrong and the price drops below that ema line, they'll soon find out and their loss will be minimal.
If they aren't wrong, they bought in at ground zero and maximize their potential profit.
So that's the reason why you see a lot of buying power at this level. The only question is; Is there enough buying power to not only stop the price of btc from falling any further but also to ignite a new rally?
Obviously technical analyses can be very useful but it's insufficient (in my opinion) when analyzing btc. We also need to look at Market Sentiment and 2 factors that are a risk to this market.
Look at part two for the second part of this idea.
Hi, good post! I ask you why is it advisable to take the Moving Soxes exponential and not the simple ones to determine signals? I've seen other analysts take simple MMs in their graphics. On the other hand as you see the evolution BTC for next days. It seems that the $ 8k for now has been good support, but so was $ 10k for a while and here we are. Tks
Enslaveyourcapital
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@gusccbb, Hi, thank you for your reply on my post. That motivates me to create more ideas! I believe that exponential moving averages are more powerful than the simple moving averages because the exponential moving averages gives more weight to the recent prices. Therefore i believe that the most recents market conditions are better reflected in the exponential everage than the simple average.
@cataldo, if it is clear. Thanks for your comment. It helps to learn.
Enslaveyourcapital
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@gusccbb, About the validity of the 8/9k support line. It's very difficult to say! I do believe that we need a lot of positive news in order to get a real bounce. It could very well be that BTC will test that 10k price again. If it can't break that 10k, that price of 10k has officially become a new resistance area. If it does break that 10k area we could see another test of the 13k. But we need to wait and see. If bitcoin drops back to that 8k and closes below it. I fear we might see the 5 k levels.
gusccbb
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@cataldo, if my question is if it is a good time to enter short between 9k to 10k?
Enslaveyourcapital
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@gusccbb, Hi Gus, would you maybe follow me? Would be great to have my first follower? Sorry for the late response. I would NOT recommend shorting bitcoin because it's known to make huge moves and it could easily end in a margin call. You could lose all your money. If you really want to short bitcoin. I would short it with up to 5 percent of your total capital. Why only so much? Well because if bitcoin does go to 2000 or even below it, you'll make a decent profit. If bitcoin starts with a huge rally to the upside. You won't get margin called very soon and you'll have more room to find the best suitable moment to cover your short position. I hope this helps (I must state that nothing that i write is investment advice. It's just what I would do myself so use at your own risk friend)