Bitcoin Technical Analysis Update (3 Charts)
The bitcoin price jumped about 6% higher over the weekend – ending the week at just under $28,000 a coin. This level is also about 13% above its September low of around $24,800. Here are 3 bitcoin charts I’m looking at right now to see if this move is sustainable.
Chart 1: Bitcoin is back above its 21-week exponential moving average (EMA).
The 21-week exponential moving average (EMA, yellow line) has generally been a good indicator to gauge bitcoin’s bigger trend. When bitcoin is trading above it, and the line is sloping up, momentum tends to favour the bulls. While the price can easily come back down in the short term and “retest” the 21-week EMA (currently around $27,400), the bulls will want to see this level hold to stay in charge of the trend.
Indicator explanation: The 21-week EMA is an average of bitcoin’s price over the past 21 weeks. But unlike a simple moving average, it puts more weight on recent price movement (hence “exponential”).
Chart 2: Bitcoin’s weekly Bollinger Bands are getting wider, and volatility is increasing from a record low base.
The weekly chart above shows the Bollinger Bands around bitcoin are extremely close together, but are now starting to expand. Back in June this year the weekly Bollinger Bands were the closest they have ever been in bitcoin’s history.
After its August drop, bitcoin never closed below the bottom Bollinger Band. In big down moves, the bears take control, as the price starts to break below the bottom band while volatility increases. Instead, buyers stepped in to calm the price down. And the price has now moved higher and reached the middle band (orange).
Indicator explanation: Bollinger Bands tell you how volatile bitcoin is at any point in time. When the bands are closer together, the price ranges are small. When they’re far apart, the price ranges are big. Typically, when the bands are closer together for longer, bitcoin has its biggest moves (up or down) when volatility eventually returns.
Chart 3: The 21-day exponential moving average (EMA) has crossed above the 50-day simple moving average (SMA).
After yesterday’s price jump, bitcoin’s 21-day exponential moving average (EMA, yellow line) crossed above the 50-day simple moving average (SMA, blue line). Historically, this setup has favored the bulls.
I backtested the results for this cross in TradingView. This particular cross has happened 43 times in bitcoin’s history (using the BLX chart since 2010). Out of those times, 58.1% resulted in more upside for bitcoin (before the 21-EMA crossed back below the 50-day SMA).
Today’s “bullish cross” would be the 4th of this year. The first was in January, which resulted in a 28% move higher for bitcoin before the next cross down. The last two were nothing burgers – with bitcoin’s price moving 0.7% up and 2.3% down, respectively.
Indicator explanation: The 21-day EMA is more responsive to bitcoin’s recent price moves than the 50-day SMA. So when the “faster” 21-EMA crosses above the “slower” 50-SMA, the buyers could be gaining more momentum.
October has statistically been a good month for bitcoin, and right now the charts do suggest that momentum is with the buyers. I remain generally bullish on bitcoin, so long as it continues to finish each week above the 21-week EMA. Based on the weekly Bollinger Bands, bitcoin could be putting its slow summer behind it. From where I’m standing, dips are for buying until proven otherwise.
Disclaimer: This is not financial advice. Bitcoin is volatile and unpredictable. This analysis is based on personal opinions and should be taken “as is”. It’s essential to do your own research and draw your own conclusions. Like all traders, my opinions can and will be wrong.