Let's get Technical!: BITCOIN - Technical Analysis

Tuesday, 8 September 2020

BITCOIN - Technical Analysis

Hello Readers,

Bitcoin analysis works with RSI range 40 to 70 on the daily chart, unlike the 30-60 level observed on stocks and indices. In the chart below, we have analysed the daily chart to observe the price behavior when RSI successfully reverses from 40. Turns out, and also highlights on the chart, every time RSI on the Bitcoin Index has taken a support at 40, the price has rallied strongly. This establishes the fact that historically RSI has worked as a wonderfully reliable indicator in forecasting bitcoin rallies.

Figure 1: Daily chart: Bitcoin (USD), captured on 8-Sept-2020

A closer look at the daily chart of Bitcoin shows that it recently broke below the support level of 10900. Few concerning observations are:

1) The breakdown happened against very high volumes (blue rectangle on the chart)

2) The breakdown took RSI below the level of 40 (blue circle)

The immediate support now is the red line indicating the 200 EMA level of 9000 which is historically and psychologically very important.

Figure 2: Daily chart: Bitcoin (USD), captured on 8-Sept-2020

Re-adjusting our lense to look at the wider picture again, in order to determine what happens when RSI breaches below 40, we get the below picture (figure 3).

Every time RSI has gone below 40, price on Bitcoin Index has corrected more than 20%. That being said, not all corrections were a result of RSI breaching level 40 but all RSI breaches resulted in a heavy correction.

The most recent data shows that RSI has already breached the level fo 40. This is a good indication of the correction which is bound to follow. The probable support on the chart is at 25% downside from the current level. The current level is $10,126 and strong support is at roughly $7500.

It is best to look out for the level of 8900-9000, given its importance and in the event of a breach, brace for further slide.