Since March of this year, Bitcoin has experienced two consecutive 20% corrections, a stark contrast to its behavior throughout 2023 and early 2024.
When Bitcoin starts losing momentum, it can be a sign of trouble ahead. So, is the recent price action indicating that Bitcoin has topped out and is ready to move lower?
A Look Back at Our Recent Predictions
In our last article, we predicted that Bitcoin would make its way back to the channel and possibly resume its bull market.
There was a great setup in May 2024 to buy Bitcoin: key moving averages were pointing upwards, suggesting a strong trend and the price was above a critical support level. The S&P 500 was surging to new all-time highs, presenting a possibility for Bitcoin to catch up to the broader market.
We initiated a trade on Bitcoin in May, and initially, it moved nicely. However, Bitcoin failed to break above resistance and started to turn around, diverging from the S&P 500.
We closed half of our position for a 10% profit when it broke below a trend line. Unfortunately, Bitcoin continued to move lower, hit our stop loss, and we had to close the rest of our position at the same level we initiated it in May.
The Current Technical Posture
Today, Bitcoin's technical posture is broken, raising concerns about additional downside risk in the short term. Could this be a whipsaw or a false breakdown, often referred to as a bear trap? Absolutely. The S&P 500 is at all-time highs, and Bitcoin and the S&P 500 have been closely correlated in recent years.
The last two times we saw a strong divergence between Bitcoin and the stock market were in January 2024 and January 2023. In both instances, Bitcoin eventually caught up to the S&P 500.
However, if we look back to November 2021, Bitcoin was moving lower while the S&P 500 was moving higher, and it was the stock market that eventually caught down to Bitcoin.
There is evidence that large Bitcoin holders have been selling over the past few months, which is the opposite of their behavior at the end of 2022. For more information on this dynamic, check out the video from Capital.com.
Risk Management and Trading Strategy
When it comes to any asset, there are always bullish and bearish cases to consider. The key to making money is effective risk management. Here are four principles we apply to our trades:
- Initiate trades with a great risk-reward ratio.
- Book profits when things are going well.
- Don’t close winning positions too early.
- Avoid letting winners turn into losers.
We applied these principles to our Bitcoin trade: initiating when the risk was lower than the potential reward, booking profits early, and cutting exposure before it turned into a heavy loss.
Bitcoin's Current Trading Range
Currently, Bitcoin is in a sideways trading range with no clear direction. One possible scenario is for Bitcoin to test the bottom of this price channel before potentially catching up to the S&P 500, which would be a classic bear trap move. We are closely watching Bitcoin for other trading opportunities.
Spotlight on Solana
We also have an active trade on Solana, initiated when it was testing a key trend line defined by lows in 2023. Despite some skepticism about the validity of this trend line, Solana is already up 10% since testing this support.
The technical setup looks similar to July 2021, when Solana experienced a significant run-up, a multi-month consolidation, and a successful test of the 200-day moving average.
Today, Solana has seen a similar run-up, consolidation, and what appears to be a successful test of the 200-day moving average. If it continues to follow this path, Solana could reach as high as $560. However, we will apply the same strict risk management strategy in case Solana breaks down below this bullish structure.
Our Track Record
Being picky and strict with our crypto trades has brought significant success to our clients. Despite the high volatility in the crypto space, our losses have been small while some winners have been substantial.
There's no guarantee we can maintain this track record, but we are committed to working hard to ensure our success continues.
What do you think? Is Bitcoin gearing up for a bull run, or is it signaling a top? Let us know your thoughts in the comments below!