Bitcoin technical analysis
By Jonathan Hobbs, CFANovember 25, 2021
Falling markets can provide us with great opportunities if we buy the dip. But this comes with extreme risks. What if the price keeps dropping? And instead of buying “the” dip, we end up catching a falling knife?
Here are a few things to consider when trying to “safely” buy assets that are on sale.
By Jonathan Hobbs, CFANovember 9, 2021
In yesterday’s post, we discussed crypto bear traps and how to avoid falling for them. Looking at today’s ADA chart, we could have one playing out in real-time.
How has ADA performed in recent times?
ADA has been one of the top-performing digital assets around. It’s hard to believe Cardano’s native token cost less than 2 cents in March 2020, yet today sells for over $2.
The below chart shows ADA’s recent performance. Most of this came from 3 major “price swings”. As the chart implies, ADA has been a phenomenal asset for swing trading.
By Jonathan Hobbs, CFANovember 8, 2021
Bitcoin is fast approaching fresh all-time highs, and those who have held onto their crypto are now reaping the benefits. With that said, HODLing has not been easy in recent times. There have been many crypto bear traps along the way, which would have prompted even the most “diamond handed” of holders to consider selling at some point.
In this article, we will discuss how to:
- Identify bear traps
- Avoid falling for them
By Jonathan Hobbs, CFANovember 5, 2021
Those of us who trade or invest in crypto often feel FOMO. “Fear of Missing Out” is a powerful emotion. As traders, it’s completely fine to feel FOMO – as long as we don’t act on it!
Here are 3 reasons why FOMOing into a trade is a bad idea:
By Jonathan Hobbs, CFANovember 4, 2021
Yesterday bitcoin dropped by $2,000 in 35 seconds. At 6:00 PM UK time the price was ~$62,450, and by 6:00:35 PM it was ~$60,360. But by 7:00 PM, bitcoin was back above $63,000.
Traders who waited for the 1-hour candle close at 7 PM were still long.
In this article, we will explore a few reasons why it is (usually) better to wait for a price candle to close before making a trading decision.
By Jonathan Hobbs, CFANovember 3, 2021
I recently went out for a meal with my family. It was our usual Sunday roast at our local pub, except it was 15% more expensive. The food was the same, but the price had gone up. Inflation is all around us, you don’t need to look very far.
By Jonathan Hobbs, CFANovember 2, 2021
October was a good month for bitcoin. The price started the month at around $43,000 and ended it just above $61,000. That’s about a 40% increase. So, what might be on the cards for November? Before we try to answer this question, let’s first account for why bitcoin went up so much in “Uptober”.
By Jonathan Hobbs, CFANovember 1, 2021
I was at the pub with friends a few months ago, back when bitcoin was under $40K. The topic of crypto came up. It then moved quickly to meme coins.
One of my mates said he had bought £1,000 worth of Shiba Inu tokens earlier this year. He is now up over 10 times that. Not too shabby. Of course, he needs to take profits to realise that!
This mate – let’s call him Bob – bought Shiba in July this year, and his investment is up about 1,000%. But if he had bought in February, he could have retired on his own island.
The chart below shows why:
By Jonathan Hobbs, CFAOctober 19, 2021
I first started investing in crypto around August 2017. I had just started stopsaving.com and an old friend from high school emailed me to ask what I thought about crypto. Back then, I thought it was a scam – like most people with a traditional finance background did at the time!
Much has changed since then. I’ve since written two books on crypto, helped manage a crypto hedge fund, and now spend most of my spare time immersed in the crypto space. Throughout this digital journey, I’ve used many trading and investment strategies. Some have worked very well, others not so much.
With that being said, there is one particular investment strategy I still use when certain market conditions call for it – value averaging. I first started using value averaging for crypto in September 2017. At the time, I felt this was a good way to get into the crypto market without buying too much at high prices.
As it turns out, the strategy worked well. The second half of 2017 saw an epic run-up in crypto prices. The hard-coded rules of value averaging forced me to buy dips and, more importantly, take profits when prices got too high. I got out of 2017 alive.
It’s now October 2021 and the bitcoin chart looks very familiar. And I’m using this same strategy once more. But this time, there is one crucial difference – bitcoin is the base currency.
I aim to value average into altcoins in order to increase my bitcoin holdings over the coming weeks and months. This is based on my current thesis of how I think the crypto market is most likely to behave for the remainder of this year.
By Jonathan Hobbs, CFASeptember 6, 2021
Becoming a better trader is no easy feat. Whether you are trading stocks, FX, bitcoin, or degen altcoins, it is difficult to become consistently profitable over time. With that said, cutting out common crypto trading mistakes can help improve your bottom line.
Here are 6 crypto trading mistakes that you should try to avoid if possible.
By Jonathan Hobbs, CFASeptember 2, 2021
The crypto market has come a long way since the misery of mid-July. And it seems the old investment adage of “sell in May and go away” has played out to a T. Are we now in the second leg of the crypto bull run?
According to a few monthly charts shown in this article, we certainly are.
By Jonathan Hobbs, CFASeptember 1, 2021
In this article, we will learn how to create a crypto correlation matrix in Excel. We can apply these concepts to other asset classes.
We all know that diversification can help stabilize your crypto portfolio over the long term. This is because different investments go up over time, but they don’t all go up at the same time!
In this post, we will also show how correlation analysis can help with diversification.
By Jonathan Hobbs, CFAAugust 26, 2021
While the longer-term uptrend of bitcoin still remains intact, Bitcoin has just closed a four-hour candle below the previous low.
We now have lower highs and lower lows on the bitcoin 4-hour chart, which means that bitcoin is now officially in a downtrend on this time frame.
Should the bulls be concerned here? Or is this just a healthy correction before bitcoin continues higher?
On that note, let’s jump into the charts.
By Jonathan Hobbs, CFAJune 30, 2021
Today is the last day of June, which means that bitcoin is about to close a monthly candle. This will provide us with an opportunity to go into some longer-term analysis of the bitcoin price.
This way, we can try to answer the question on everyone’s mind: Is bitcoin going into a sustained bear market or not?
To help with this analysis, we will also examine the bitcoin weekly chart, and the weekly and monthly charts of the US dollar index (DXY).
But before we get to that, let’s first start with the bitcoin daily chart to see what is potentially on the cards as we head into July.
By Jonathan Hobbs, CFAJune 29, 2021
Bollinger Bands are one of my favorite tools for trading and investing. In this article, we will learn how to use them as a framework for spotting potential trend reversals.
What are Bollinger Bands?
John Bollinger invented Bollinger Bands in 1983. At the time, he was the chief market analyst on the Financial News Network (FNN).
Bollinger bands are a simple technical tool that can tell us about the volatility of a particular asset being traded. If used the right way, they can also tell us when an asset is trending, in a range, or is more likely to reverse in price.
Importantly, Bollinger Bands are adaptive because they are constantly reacting to the price.
This makes them useful for trading and investing.
By Jonathan Hobbs, CFAJune 9, 2021
With bitcoin in a downtrend, an important question comes to mind. Is now the time to look for undervalued DeFi investments?
While most crypto assets could easily dip further from here, finding value in the DeFi market is easier today than it was two months ago. In this article, we will examine a simple ratio to help us do just that.
What is DeFi?
DeFi stands for “decentralized finance”. This is a movement that aims to cut out centralized middlemen (such as banks, exchanges, and lending and borrowing platforms) from complex financial transactions.
Here, all transactions take place through automated smart contracts, such as those programmed on the Ethereum blockchain. Through various DeFi protocols, we can easily lend, borrow, and trade digital assets.
None of these funds are held by a central party at any time. Instead, they are “locked” inside a protocol and used as lending/borrowing collateral or trading liquidity.
In the world of DeFi, the laws of finance are written in the code.
By Jonathan Hobbs, CFAMay 28, 2021
The bitcoin price has taken a serious knock in recent weeks, shedding more than half of its dollar value. Are we now in a bitcoin bear market? Or, is this ‘normal’ bull market price action for the world’s most volatile asset class?
What happened to bitcoin?
On 14 April 2021, bitcoin broke $65,000 for the first time. But just over one month later, on 19 May, its price dipped below $30,000. From top to bottom, this was about a 54% correction.
There are many reasons why the drop happened. Take your pick:
- Bitcoin was is a ‘Wyckoff distribution’ topping pattern.
- Institutional investor concern about the environmental impact of bitcoin mining (which I believe are misplaced).
- Elon Musk tweets.
- Altcoin mania.
- Mainstream media FUD and market manipulation by whales (funny that it is never manipulation on the way up).
- More sellers than buyers (my theory).
Comparing similar bitcoin price drops:
Scrolling through crypto Twitter, we can see the usual sentiment: this is just a bullish dump. This is ‘normal’ in a bitcoin bull market.
But is it normal? Or have these types of price declines historically brought the bitcoin bears out of lockdown?
To answer this question, we need to study similar bitcoin price corrections. Some of these have resulted in a bitcoin bear market, others have not.
By Jonathan Hobbs, CFAMay 19, 2021
The bitcoin price has taken a major dive in the last few weeks. Right now, it is firmly on the ropes. Is the party over? Or is it time to buy the dip? Let’s try to answer this question using the bitcoin hash ribbons indicator.
What is the bitcoin hash rate?
Before we get to the hash ribbons indicator, we first need a basic understanding of the bitcoin hash rate.
Put simply, the hash rate is the amount of computing power that miners contribute to the bitcoin network at a given point in time.
The hash rate goes up when more miners compete to mine bitcoin. Typically, this happens when the bitcoin price is relatively high as there is a good incentive for them to mine bitcoin. The hash rate can also go up when the electricity cost of mining is low relative to the price of bitcoin.
On the flip side, the hash rate usually goes down when the bitcoin price drops, or when the price does not increase for a long time. When this happens, miners often take their resources elsewhere. In other words, bitcoin mining activity goes down because it is less profitable for miners.
If you would like a more technical explanation of how hash rates fit into the bitcoin mining process, you can read this article on how bitcoin works. But for the point of this post, there are just two things we need to know about hash rates:
- Higher hash rates mean more bitcoin mining competition
- Lower hash rates mean less bitcoin mining competition
Here is a chart from blockchain.com showing bitcoin’s hash rate for the last 3 years. Notice how it has trended up with the bitcoin price.
By Jonathan Hobbs, CFAMay 7, 2021
Ethereum has seen some exceptional price action lately. Why is this happening, and will the good times continue for holders of ether (ETH) tokens?
What is Ethereum?
Before we get to the ETH price chart, let’s first dive deeper into what Ethereum actually is. This will provide us with more context on what is driving the Ethereum price rally.
In my mind, the best way to explain Ethereum is to compare it with Bitcoin.
Through the Bitcoin blockchain, anyone can send digital currency (bitcoin with a small ‘b’) from point A to point B. This can be done without the use of a financial middleman, such as a bank.
This is because the Bitcoin system (Bitcoin with a large ‘B’) is just a public record of who owns bitcoin at any point in time. This record is updated and secured roughly every ten minutes through the bitcoin mining process.
Like Bitcoin, Ethereum has its own blockchain that can record simple financial transactions.
But unlike Bitcoin, the Ethereum blockchain also records complex financial transactions.
These can be programmed to its blockchain in the form of smart contracts.
By Jonathan Hobbs, CFAMay 4, 2021
The NVT ratio (or Network Value to Transactions ratio) is the closest thing to a price-to-earnings ratio that you will find for bitcoin. In this article, we will learn about the NVT ratio and what it currently means for the bitcoin price.
Who came up with the bitcoin NVT ratio?
Willy Woo first introduced the NVT ratio in a tweet he put out in February 2017. Here, Woo stated that bitcoin was not currently in a bubble according to NVT.
At that time, Bitcoin’s price was about $1,200. So, it turns out he was right.
In late September 2017, Woo wrote an article in Forbes Magazine explaining the NVT model in more detail. In the article, Woo again confirmed that bitcoin was not yet in a bubble.
At the time of that article, bitcoin stood at $4,000 and would rise a further five-fold before it came crashing down. So again, Woo’s ratio was right on the money.
By Jonathan Hobbs, CFAApril 30, 2021
The altcoin market is going ballistic right now. Since the good times won’t last forever, it is important to 1) make hay while the sun shines and 2) have a ruthless plan to take profits along the way. With this in mind, here is a simple crypto investment strategy that I am using in the current market conditions.
What is happening in crypto right now?
Before we get to the strategy, I will first give my quick thesis of what I believe is happening in the crypto market right now. I could go on about the fundamentals of bitcoin, lockdowns and money printing, corporate treasuries buying bitcoin, and so on. But I will not do this. This is because, to me, the current state of the crypto market can be summarised in three simple charts.
By Jonathan Hobbs, CFAFebruary 18, 2021
The crypto bull market is relentless right now. With bitcoin breaking $50,000 and most other digital assets climbing higher, you may be asking yourself what to do next? These 3 things can help you get the best out of the bull run and also survive it emotionally.
1. Get your crypto mindset right
It’s easy to get consumed by the current “crazy gains” to be had in the crypto market. And for many people, these gains can and will be life-changing.
With that said, bull runs can be physically and emotionally exhausting. The fear of missing out on further gains and the fear of losing out on current gains are enough to keep most people awake at night.
A good mindset towards crypto will help you sleep better and stop you from putting the rest of your life on hold. Not only that, but it will probably lead to better “gains” in the long run.
Here are some things that might help with this:
By Jonathan Hobbs, CFAOctober 7, 2020
Investing based on emotions rarely leads to success in the markets. In this article, we will explore 5 emotional investment biases that can lead to poor decision making when investing.
1. Loss-aversion bias
Loss-aversion arises when investors feel more pain from a loss than pleasure from an equal gain. If Alice lost 10 percent on a bad trade, it would crush her emotionally. But if she made 10 percent on a good trade, she would only be mildly happy.
Investors like Alice will try to avoid losses at all costs. This can lead to the following poor investment decisions:
- Holding bad investments for too long to avoid realizing a loss.
- Not letting ‘winners run’ but instead banking small profits to avoid small losses.
- ‘Doubling down’ on poor investments that are already losing money.
- Taking excessive risk with money they already made from trading, but taking much less risk with the rest of their money.
By Jonathan Hobbs, CFASeptember 30, 2020
Bitcoin is well known for catching investors off-guard with its volatility. It can do nothing for months on end, then move fifteen percent in a day in the opposite direction you thought it would. While this can be a deterrent for some, it does imply that bitcoin behaves differently to other investments. In this article, we will examine bitcoin correlation with other assets over the last 5 years.
What is Correlation?
Two investments are correlated if they move in a similar way. They are uncorrelated if they do not.
Diversification works better when assets are uncorrelated or negatively correlated. If you own stocks and bonds, for example, bonds might go up when stocks go down.
By Jonathan Hobbs, CFASeptember 28, 2020
Are we in a stock market bubble? With the S&P 500 and the Nasdaq both hitting new all time highs recently, and the world economy slowing down as a result of governments forcing people and businesses into lockdown, this question will no doubt be on the minds of most investors right now.
What is a bubble?
A bubble is a time when asset prices rise way above their intrinsic values because investors are in a general state of euphoria. Bubbles usually ‘pop’ at the peak of this euphoria and then start to ‘deflate’.
By Jonathan Hobbs, CFASeptember 24, 2020
Markets are in a strange place right now. Are we about to have another crash like we had in March? Or will central banks keep pumping liquidity into the markets to keep the party going? Whatever happens, investors need a plan to manage drawdown risk in these uncertain times.
What is drawdown?
Drawdown is the maximum decline of an investment from its highest point (peak) to the next lowest point (trough). Using the Corona dump of 2020 as an example, we can see this for the S&P 500 below:
By Jonathan Hobbs, CFASeptember 18, 2020
Bitcoin and gold are volatile investments in the short term. But in the long term, they may provide a hedge against unlimited money printing. Both of these assets are scarce and finite commodities. Relative to fiat currency this gives them value.
In this article, we will compare the relative scarcity of bitcoin and gold using the Stock to Flow model.
What is the Stock to flow model?
- The “stock” is the total supply that has already been mined.
- The “flow” is how much new supply is mined each year.
The stock to flow ratio is given by the formula below:
By Jonathan Hobbs, CFASeptember 11, 2020
In these times of major market volatility it is more important than ever for traders to manage risk. In this article we will look at the ‘risk per trade’ method of trade position sizing.
What is trade position sizing?
Let’s say Bob wants to short Tesla but he doesn’t want to take too much risk. The first thing Bob needs to keep his risk management in check is a stop loss. This way if Tesla’s price keeps climbing, Bob would automatically close his short position to limit his loss.
If Bob has a tight stop loss on his Tesla short position, his loss would be smaller than if he has a wide stop loss (assuming the price reached both stop losses). But the loss on Bob’s trading account would also depend on the dollar value of his Tesla trade—this would be his trade position size.
By Jonathan Hobbs, CFAJanuary 31, 2020
Fibonacci Retracement levels are a useful tool for many technical analysts. In this post, we will find out why.
The usual disclaimer: none of this is investment advice. Any examples or references used are just for information and illustration.
By Jonathan Hobbs, CFAJanuary 24, 2020
Portfolio Rebalancing can improve returns and lower the risks of investing over time. In this post, we will explore 3 things to keep in mind when rebalancing your portfolio.
The usual disclaimer: none of this is investment advice. Any examples or references used are just for information and illustration.
By Jonathan Hobbs, CFASeptember 28, 2018
Diversification between assets classes can improve the risk-adjusted returns of your investment portfolio. In this article, we’ll see how portfolio diversification applies to bitcoin.
The usual disclaimer: none of this is investment advice. It’s just for information and illustration.
By Jonathan Hobbs, CFASeptember 10, 2018
In this series of Technical Analysis 101, we will explore one of the most commonly used technical trading indicators: the Relative Strength Index (RSI).
The RSI is a momentum indicator that traders use to show whether an investment is approaching overbought (sell signal) or oversold (buy signal) territory.
By Jonathan Hobbs, CFAJuly 7, 2021
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