Bitcoin Trading – Analyzing the Dumps

Bitcoin rose nearly 20x throughout 2017 but has spent 2018 living in a bear market. Now we are left wondering how much of the crazy momentum from last year can actually be sustained in the mid-term.

For a reminder, here’s a look at Bitcoin’s price movement last year…

The Bitcoin Market

Let that sink in again. We nearly rose 20x in value within one calendar year.

Now, take a look at the year-to-date chart …

Bitcoin price chart year to date for Bitcoin price 2018

Alright folks, let’s begin …

Today we are taking a different approach in our teachings. We want to demonstrate how you can potentially call sudden volatility in Bitcoin’s price and catch great trade setups. To do this, we will be looking at the price action this year, recent selloffs, some technical analysis and relevant news stories.

Analyzing recent selloffs will give you a direct visualization of “why and how Bitcoin crashes.” Getting this context figured out is crucial for being profitable over the long-term. Once you understand it better when the market suddenly erupts or skyrockets, you’ll find yourself entering into highly profitable trades. 

If you have ever thought about shorting Bitcoin for profit… we highly recommend you continue reading this overview piece. Many traders are analyzing the markets, looking at past price swings and trying to pin future potential bottoms and reversal pivot points. This analysis will help you to better understand how you can successfully do the same and plan your trades according to your findings.


Bitcoin Dumps in 2018 – Taking A Deeper Look

Bitcoin’s all-time high in the middle of December 2017 was followed by a roughly 60% drop by the start of February. That’s right, BTC fell in value by more than half in less than two months. Bitcoin has been known to spike up near year’s end and crash or lull for the first few months of the following year though.

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Bitcoin selloff 2018 chart from CoinbasePro

What We Want to Achieve …

We want to zoom in on the largest daily selloffs … this is a more telling story for daytraders and it allows us to more accurately cover the selloffs that were triggered by specific news stories. It will help you “understand how understandable” the recent selloffs were too experienced traders.

A good point to remember: People look for news to speculate on Bitcoin prices, but sometimes technical analysis dictates the moves. In reality, the pivotal points plotted through TA like listed above are “news events” because they are freshly transforming speculative sentiment.  

We advise you to consider your trades only after asking yourself “is there any major news out right now or expected soon?” and “are we at or near any important technical price levels?”.

Master the technical analysis side before you seriously trade. That aspect of this game is so important for your success… It gives you the power to profitably call large price moves which you can leverage trade (if you want, but check our bankroll management guide first) for sizable profits.

Also, don’t forget … ALWAYS check the charts for different timeframes to get a better idea on movement (especially when day trading).

Chart Timing Explained

You may visit TradingView’s website and get confused by all the different speculative calls. Some people are saying “we are going down” while others are declaring that we are on the forefront of a new moon mission. 

While trading indicators can impact price forecasts in both ways, sometimes the real difference in the evaluation is how the price moves across different charts (by time).  

We recommend that you read our tidbit on chart timeframes. That topic is followed with an immediate, highly analytic breakdown of the price action we’ve seen thus far this year. You will get a better visualization on why we are here and where we could end up next.


Major Bitcoin Price Dumps of 2018

We’ll go over some of the most important price drops of the year. We’ll start with the downward price action in January and work our way up to present day. Take your time to decipher everything but value the unspoken data too — a complete TA picture cannot be formed with this information alone. 

January 1

Bitcoin reached a high of $14,112.20 and hit a $13,154.70 low before bouncing back the next day. The price went down 7% from the highest price of the day.

Note: While bullish spikes can coincide with larger spreads, we’re only giving examples of days where the price trend was downward.

News from that day

Top Bitcoin news stories on Google on 1st Jan 2018

The market sentiment took a turn for the worst. When many assets take a new year as a time to potentially buy as many have sold off before year’s end for tax purposes, we were in a unique situation…

The status quo didn’t apply to Bitcoin because the crazy near-20x price rise happened just two weeks before the year started. We entered the year with tremendous downward pressure and a new Bitcoin Futures market that offered shorting opportunities for big traders.

Needless to say, the price dropped substantially on that day. It did rise to make a higher high the next day, January 2nd. That day saw prices trading at a $13,163.60 low and $15,444.60 high. The price moved up much much more than it went down the prior day. However, when you analyze the chart for then it’s easy to understand why the bigger bull push didn’t hold any weight.

The price did trend up to the $17,000 area to form a double-top below the December all-time-high… Before crashing violently for the following six months. Let’s look at the technical analysis side to try and understand why, even after a 7% drop in one day, we saw this upward momentum and why it failed to push us to new highs. 

Technical analysis at the time

The entire bull flag forming the all-time high was voided in early January when the price stayed subdued in the sub-$11,000 price range. The upward push began when we broke through $12,000 and for a while it was viewed as a support. The lower second top gave us the start of a long-term descending triangle.

Bitcoin technical analysis at beginning of 2018

Note: The “Buy zone” target is set out by day/swing traders and not long-term holders. Buying at $10,000 was valuable for quick flipping purposes. But, given how insane the Bitcoin bubble was in 2017, many experienced traders were expecting four-figure bitcoins once more.

How would you trade this price action?

In hindsight, all the price movement in early 2018 was entirely predictablewe were in an EXHAUSTED MARKET after the massive bull run last year. The traders with TA insights were able to short the market and make a killing. Meanwhile, new traders who took the “hodl” route found themselves losing big.

The double top we talked about for early January was just a bull trap for “top buyers”. The goal was to get them to impulsively hop on the train to “new all-time-highs” before pulling the plug and letting the market fall.

We saw the price run up by thousands of dollars, yet short positions held steady before making a large rise later in the month. The increase in shorts happened while the price of Bitcoin steadily declined. Understand, if we were still in a bullish trend this change would be met with an increase in longs but the buyers aren’t matching up with the sellers.

So we did expect more downward pressure, which brings us to the next huge dump …


February 5

Over just a little more than two weeks Bitcoin went down 50% from its peak after double topping in early January. The price traded for ~$6,000 at its low point before rebounding back up aggressively to $12,000 before returning to the same ol’ downtrend.

On February 5 in particular, we saw Bitcoin drop from nearly $8,000 to $6,000 which is a 25% decrease in value. This amount is super significant and almost certainly not a price fluctuation that’s solely based on technical analysis.

News from that day

Top Goolge Bitcoin news stories on 5th February 2018

Lots of bad news came out on that day…

Technical analysis at the time

Bitcoin technical analysis of February 2018 charts

The market finally believed we were in a downtrend after double-topping in early January and failing to consolidate upward after numerous drops. No real support was found until we bottomed out here in February, which in August is still seen as a support level!

All these negative announcements did was provide further confirmation that we entered into a downtrend. In fact, this $6,000 bottom plunge invalidated the bullish perspective for 99% of traders. That didn’t matter much though. The heavy drop from December’s high was met with a strong bounce. The market essentially went up 100% in only two weeks before coming back down.

The fact that a $15,000-plus Bitcoin was out of sight was almost unanimous sentiment by this time, although many had hope still in January. The market reached a point where we needed to decide “is this the bottom or are we going further?” After such a substantial fall, it appears challenging the low through a descending triangle was the logical route for the market to take.

The news was certainly a catalyst but Bitcoin was overbought. Any moment of genuine sell pressure or bad news quickly turned to bloodshed. Many bounces occurred but eventually, it became clear that the highs were constantly getting lower. Plus, by this time BTC’s buy support was questionable at best.

How would you trade this price action?

Cryptocurrency trading setup

We would recommend avoiding the “short” button altogether as the market dropped so much, so fast. The traders that were fortunate enough to catch the low $6,000’s before the bounce was able to make major profits on their longs. With a tight stop, a limit order long with around 5x leverage at around $6,100 would’ve been a golden opportunity.

The meteoric bounce did create many great opportunities to go short. As the downtrend continued, leverage trading became more popular as well. We’ve really seen the price get suppressed both from the natural response to 2018’s bubble and due to the natural market phenomenon.

However, on such moves, you must be careful to not emotionally invest yourself. Bitcoin going from $6,000 to $12,000 in two weeks is unsustainable. Even a move up to $9,000 sounds crazy… So, if you long at a good price, how do you decide when to exit?

The most important thing you must do is accept the fact that, when you exit, you will not re-enter out of “fear of missing out (FOMO)”. Buying at $6,000 and selling at $8,200 is great… if BTC runs to $12,000 afterward, unless you have TA backing you up, sit it out.

A break above $10,000 could easily cause brief parabolic moves which creates the perfect chance to open a short which you can hold for the next time we get down to the $6,000 range. The leverage used is up to you but only about 2x would be safe here. As the market corrects it’s possible to dollar cost average down to increase your position size as you get an indication that the downtrend is still on.


Other notable Bitcoin price dumps

  • January 29 – Coincheck $500m hack, price fell from $12k to $10k
  • March 28 – Bitcoin’s death cross fears, price fell from $7.9k to $6.9k
  • April 24 – Market bounced all month after “double-bottoming” at $6.4k, on this day the price fell from $9.6k to $8.7k
  • May 10 – Failed to break uptrend line and wiped out recent price gains, dropped from $9k to $8.3k
  • June 9 – News breaks that CFTC regulators are pressuring crypto exchanges, price fell from $7.5k to $6.6kk
  • June 21 – No bullish momentum surfaced which lead to a lackluster bounce before this day, price fell from $6.7k to $5.9k
  • July 30 – After bottoming below $6k we tested 100-day EMA on weekly and made a lower high, price fell from $8.2k to $7.6k
  • August 8 – The rejected EMA crossover sent us further down and added to the descending triangle on the weekly, price fell from $6.7k to $6.1k

Have a particular date you want to analyze? Search Google for the date + including “daily discussion” + Reddit, this will help you locate the daily chat thread. On there you can find community comments (an indicator of market sentiment), relevant news for the day, insight on patterns that were playing out, etc. You might also want to check weekly charts and decipher the news / TA by week as a single day of data isn’t always all-telling.


Conclusion

Bitcoin flag graphic

2018 is proving to be a tough year for Bitcoin. Let us not forget that we’re still up more than 600% from January 2017 prices. Still, we seem to be in a market where price growth requires both established uses and mainstream adoption. People are less inclined to buy into great ideas and it’s anticipated that only the best cryptos will be left standing tall once the market reverses.

Further Reading At TotalCrypto.io
1) Do You Think Now Is A Good Time To Dip Your Toes Into Crypto? Our Best Crypto Exchange Guide Will Help You Choose The Best Exchange For You.
2) Bitcoin Adoption Is Increasing. Learn Which Country Tops The Adoption Level Charts.
3) A Bitcoin ETF Could Completely Change The Crypto Markets. Find Out If The Biggest Crypto Run In History Is About To Begin.
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