Bitcoin Trading Strategies

Chart Patterns

Richard Schabacker is considered one of the greatest technical analysts in the history of investing. Schabacker introduced the concept of technical analysis to an entire generation of new investors in the aftermath of the Great Depression. In 1932, he published a book containing his most profitable trading techniques. The name of the book was, Technical Analysis and Stock Market Profits. The book was filled with Schabacker’s original work on chart patterns and technical analysis. It became incredibly popular within the technical analysis community. Today, Schabacker’s book is considered the original bible of technical analysis.

The field of technical analysis consists of two different categories:

  • Chart patterns
  • Technical indicators

Schabacker devoted the majority of his professional career to chart patterns. He studied thousands of charts in an effort to find the most reliable patterns. Even more impressive is the fact that Schabacker performed all of his analysis by hand. He never had access to personal computers or software.

In addition to Schabacker, other important pioneers in the field of classical chart patterns were Robert D Edwards and John Magee. In 1948, Edwards and Magee joined forces to publish Technical Analysis of Stock Trends. It quickly became one of the most popular books within the technical analysis community.

Schabacker, Edwards and Magee are credited with introducing several new chart patterns throughout the 1930s, 1940s and 1950s. Their work in the field of technical analysis is still considered to be the most groundbreaking research of the past several decades.

In regard to Bitcoin, the most reliable chart pattern involves support and resistance levels. This is one of the easiest patterns to recognize, which probably explains why it works so well. In order to receive the maximum benefit from this indicator, traders should determine the support and resistance level for each time frame. Let’s review the current chart pattern for Bitcoin.

Bitcoin Time Frames

  • Short-Term 1 to 4 weeks
  • Intermediate-Term 1 to 6 months
  • Long-Term greater than 6 months

Chart #1 displays trading activity for the past four weeks. You will notice how BTC has been unable to penetrate 52,007. BTC has failed to push above this heavy resistance level on three separate occasions. Therefore, the official short-term resistance level is 52,007.

Chart #2 covers BTC activity for the most recent four weeks. The bears have made several unsuccessful attempts to push the price below 45,544. This spot represents an excellent support level.

Chart #3 represents the intermediate-term time frame. The recent all-time high serves as an important resistance level. In order to successfully achieve a bullish breakout, the price must exceed 68,906.

Chart #4 shows the intermediate-term support level @ 39,716. This is most important support level for the Bitcoin bulls. The price must stay above 39,716 on a weekly closing basis in order for BTC to have a legitimate chance of recording a new all-time high in 2022.

Chart #5 is a long-term chart of Bitcoin trading activity, greater than six months. The most logical resistance level is the all-time high from 10 November @ 68,906. A weekly close above this important resistance level opens the door to much higher prices.

Chart #6 displays the long-term support level @ 32,470. At least for now, it appears unlikely that BTC will drop below 32,470.

Bitcoin Buy And Sell Signals

  • Short-term buy signal @ 52,007
  • Short-term sell signal @ 45,544
  • Intermediate-term buy signal @ 68,906
  • Intermediate-term sell signal @ 39,716
  • Long-term buy signal @ 68,906
  • Long-term sell signal @ 32,470

Many traders are reluctant to use chart patterns because there are no specific rules. For example, technical indicators are based on precise mathematical formulas. Chart patterns are open to interpretation. Consequently, systematic traders will not use price charts.

Despite the fact that chart patterns contain only general guidelines, they are still quite useful. Some of the most successful crypto traders use chart patterns.

Keys To Successful Trading

My trading career was launched in 1989. During the past 33 years, I have taken several thousand trades. However, the majority of my profits were generated from a very small number of trades. Based on my experience, one of the best trading strategies is to allow your winning trades to flourish as long as possible. Traders have a tendency to liquidate their winning trades way too quickly, for fear of losing the open profits.

From a psychological perspective, it’s very difficult to remain in a profitable trade for a long period of time. The temptation to liquidate the trade is simply too great. Research has proven that successful traders have the innate ability to allow their winning trades to “run” for long periods of time. For example, it’s not uncommon for elite traders to maintain a winning position for several years. The ability to stay with a winning trade is one of the characteristics that separates winning traders from losing traders.

An excellent example of a long-term winning trade can be found in the Treasury Bond market. In 1981, Lacy Hunt was a young investment analyst working for a Wall Street investment firm. Hunt made a bold forecast that government bonds were on the verge of a multi-year bull market. Hunt made a substantial investment in Treasury Bonds on behalf of his clients beginning in Q3 1981 (Chart #7). Hunt’s bullish forecast turned out to be 100% correct. In fact, Hunt and his clients are still long Treasury Bonds, 40 after the first position was established.

The success of Lacy Hunt’s 40-year investment career can be attributed to his ability to stay with a winning trade for a long period of time. Most traders simply don’t have the courage to remain in a winning trade for more than a few weeks. This explains why the majority of traders are unable to remain consistently profitable.

Always remember, “Let your profits run and cut your losses.” This is what separates winning traders from losing traders.

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