BitcoinShort
BTC - Head and Shoulders Pattern - Swing Trade
Here's the details of my Short trade on BTC...
Watch the video for more in depth insights into my trading strategy and feel free to comment and share!
Daily Chart:
- Head and Shoulders Pattern
- Volume - Following textbook head and shoulders pattern
- Divergence on the RSI and MACD
- Head failed off long term resistance
- Recent false break at 100k
Highlighted in the video...
BTC had a very similar pattern in mid-2021 that ended up sending the price all the way down to the H&S Target within 4 days. I am not expecting the same outcome, however again, history doesn't repeat itself but it rhymes. Therefore, the current price is approaching the neckline. I tend to take positions earlier on in the trade to increase the P/L Ratio potential vs. waiting until confirmation, pullback, etc because the volatility becomes too great with options and a large part of the move will be missed.
What I'm looking for with this trade is....
The price to retest 92k (Neckline)
I'd be ok with a slight bounce, even over multiple days, prior to a break of the neckline.
If the price bounces from here or via the neckline back towards 100k, that would be a red flag.
At this point, historically for BTC and text H&S pattern, we should see pretty swift price breakdown and test of the neckline, to a break of the neckline within several days. If this is not achieved it will give receive to exit and/or stop out. News and trade details highlighted below.
Recent Developments & News
- See my SPX Idea, the S&P has both a Rising Wedge and Head and Shoulders, making the overall market susceptible to a short term bear move which will be a headwind for BTC given its correlation to the market
- USA Strategic Bitcoin Reserve has made a lot of headlines and driven increased excitement about Bitcoin. However, recent comments suggest this will not be a quick decision and is not something that is relevant in the immediate term...
- In terms of the legal issues around holding bitcoin, "that's the kind of thing for Congress to consider, but we are not looking for a law change at the Fed," Powell said.
- Given the likely ways such a reserve could be created, "we suspect such a plan would face stiff resistance from the Fed," Barclays analysts said
- The European Central Bank’s chief bank supervisor, Claudia Buch, on Tuesday also flagged up risks in the crypto market, including "excessive leverage, transparency (and) conflict of interest", adding she was keeping a close eye on banks' exposure to that type of assets.
- In Europe, a series of central bankers this week dismissed any suggestion of bitcoin becoming a reserve asset.
- Belgium’s central bank governor Pierre Wunsch saw little "appetite for having reserves in bitcoins" in an interview on Wednesday.
- Outside the euro zone, Hungary’s governor-designate Mihaly Varga said on Monday cryptocurrencies were just too volatile.
- "We are following the discussion, especially in the U.S. post-elections, closely," ECB policymaker Olli Rehn said on Tuesday. "But our view has not changed. Cryptos are assets, but they are not currency," the Finnish central bank governor added.
Note:
Trump plans to appoint former PayPal executive David Sacks to the newly-created position of White House AI and Crypto Czar, and pro-crypto consultant Paul Atkins to lead the Securities and Exchange Commission. That said, the discussion and possible policy changes are possible, just not immediate.
In addition, Michael Saylor has made a lot of news with recent Bitcoin purchases and the potential for issuing shares at MicroStrategy to fund additional BTC purchases. If the shares issuance is approved it could trigger a wave of bullish activity, however the actions and purchases being taken are in consideration of a long term view for BTC and therefore may have less impact on the short term pattern. Noted in Risks below.
Target:
- Head 108k
- Neckline 92k
- Target Move: 16k
- Target Price: 76k-80k (13-15%)
- Stop: A break above 100K
- The Head and Shoulders Pattern has taken ~35 days to form
- The expected timeframe is 1/3 the days to formation so ~12-15 days to target
Risks:
- Bitcoin is currently in a long term cup and handle pattern with a target of 123k, therefore this suggested price action is considered short term and to have risks of the pattern failing
- Bitcoin has made a very strong move over the past 4 months, therefore it easily can continue it's upwards momentum
- Approval of MSTR share issuance could trigger a wave of bullishness in Bitcoin, breaking the pattern
- Trump Inauguration Jan 20th could spark a wave of bullishness as anticipation for new policy takes hold
- More and more adoption of bitcoin may override a chart pattern such as Head and Shoulders
Overall:
Bitcoin is currently in a long term, very bullish cup and handle pattern with a target of 123k. Therefore, I am taking this trade with a high degree of caution. However, the head and shoulders pattern formed with resistance at the long term upward trendline paired with short term weakness in the broader market makes it a strong case for a short term downward movement. The risk/reward ratio makes it a viable trading opportunity. See below the details of my trade...
Current Position:
BITO Put Options
Strike $25.00
Exp Jan 31st
Quantity: 3
Option Price: $2.24
Stop: $1.00
Total Investment: $675
Potential Loss: -$375
I am taking a tiered profit taking approach given the volatility and sensitivity of the trade
Target 1: $3.50 - $4.00, 1.6:1 - 1.8:1 P/L Ratio
Target 2: $5.00 - $5.50, 2.2:1 - 2.5:1 P/L Ratio
Target 3: $6.50 - $7.00, ~3:1 P/L Ratio
At each target I'll move my stop up towards breakeven and beyond
Potential gain: $825-$975
Watch the video for more in depth insights into my trading strategy and feel free to comment and share!
Daily Chart:
- Head and Shoulders Pattern
- Volume - Following textbook head and shoulders pattern
- Divergence on the RSI and MACD
- Head failed off long term resistance
- Recent false break at 100k
Highlighted in the video...
BTC had a very similar pattern in mid-2021 that ended up sending the price all the way down to the H&S Target within 4 days. I am not expecting the same outcome, however again, history doesn't repeat itself but it rhymes. Therefore, the current price is approaching the neckline. I tend to take positions earlier on in the trade to increase the P/L Ratio potential vs. waiting until confirmation, pullback, etc because the volatility becomes too great with options and a large part of the move will be missed.
What I'm looking for with this trade is....
The price to retest 92k (Neckline)
I'd be ok with a slight bounce, even over multiple days, prior to a break of the neckline.
If the price bounces from here or via the neckline back towards 100k, that would be a red flag.
At this point, historically for BTC and text H&S pattern, we should see pretty swift price breakdown and test of the neckline, to a break of the neckline within several days. If this is not achieved it will give receive to exit and/or stop out. News and trade details highlighted below.
Recent Developments & News
- See my SPX Idea, the S&P has both a Rising Wedge and Head and Shoulders, making the overall market susceptible to a short term bear move which will be a headwind for BTC given its correlation to the market
- USA Strategic Bitcoin Reserve has made a lot of headlines and driven increased excitement about Bitcoin. However, recent comments suggest this will not be a quick decision and is not something that is relevant in the immediate term...
- In terms of the legal issues around holding bitcoin, "that's the kind of thing for Congress to consider, but we are not looking for a law change at the Fed," Powell said.
- Given the likely ways such a reserve could be created, "we suspect such a plan would face stiff resistance from the Fed," Barclays analysts said
- The European Central Bank’s chief bank supervisor, Claudia Buch, on Tuesday also flagged up risks in the crypto market, including "excessive leverage, transparency (and) conflict of interest", adding she was keeping a close eye on banks' exposure to that type of assets.
- In Europe, a series of central bankers this week dismissed any suggestion of bitcoin becoming a reserve asset.
- Belgium’s central bank governor Pierre Wunsch saw little "appetite for having reserves in bitcoins" in an interview on Wednesday.
- Outside the euro zone, Hungary’s governor-designate Mihaly Varga said on Monday cryptocurrencies were just too volatile.
- "We are following the discussion, especially in the U.S. post-elections, closely," ECB policymaker Olli Rehn said on Tuesday. "But our view has not changed. Cryptos are assets, but they are not currency," the Finnish central bank governor added.
Note:
Trump plans to appoint former PayPal executive David Sacks to the newly-created position of White House AI and Crypto Czar, and pro-crypto consultant Paul Atkins to lead the Securities and Exchange Commission. That said, the discussion and possible policy changes are possible, just not immediate.
In addition, Michael Saylor has made a lot of news with recent Bitcoin purchases and the potential for issuing shares at MicroStrategy to fund additional BTC purchases. If the shares issuance is approved it could trigger a wave of bullish activity, however the actions and purchases being taken are in consideration of a long term view for BTC and therefore may have less impact on the short term pattern. Noted in Risks below.
Target:
- Head 108k
- Neckline 92k
- Target Move: 16k
- Target Price: 76k-80k (13-15%)
- Stop: A break above 100K
- The Head and Shoulders Pattern has taken ~35 days to form
- The expected timeframe is 1/3 the days to formation so ~12-15 days to target
Risks:
- Bitcoin is currently in a long term cup and handle pattern with a target of 123k, therefore this suggested price action is considered short term and to have risks of the pattern failing
- Bitcoin has made a very strong move over the past 4 months, therefore it easily can continue it's upwards momentum
- Approval of MSTR share issuance could trigger a wave of bullishness in Bitcoin, breaking the pattern
- Trump Inauguration Jan 20th could spark a wave of bullishness as anticipation for new policy takes hold
- More and more adoption of bitcoin may override a chart pattern such as Head and Shoulders
Overall:
Bitcoin is currently in a long term, very bullish cup and handle pattern with a target of 123k. Therefore, I am taking this trade with a high degree of caution. However, the head and shoulders pattern formed with resistance at the long term upward trendline paired with short term weakness in the broader market makes it a strong case for a short term downward movement. The risk/reward ratio makes it a viable trading opportunity. See below the details of my trade...
Current Position:
BITO Put Options
Strike $25.00
Exp Jan 31st
Quantity: 3
Option Price: $2.24
Stop: $1.00
Total Investment: $675
Potential Loss: -$375
I am taking a tiered profit taking approach given the volatility and sensitivity of the trade
Target 1: $3.50 - $4.00, 1.6:1 - 1.8:1 P/L Ratio
Target 2: $5.00 - $5.50, 2.2:1 - 2.5:1 P/L Ratio
Target 3: $6.50 - $7.00, ~3:1 P/L Ratio
At each target I'll move my stop up towards breakeven and beyond
Potential gain: $825-$975
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