You heard that right. One ounce of gold is going for about $1,234.00 at the moment and 1 Bitcoin is currently selling for about $1,260.00 at Coinbase (US Bitcoin exchange). Bitcoin has now achieved surpassing parity with gold!
...and that's not all!
It has also broken its all time price high -- a very bullish indicator. On top of that, it's broken out of a long forming bullish pattern (taking about 1,180 days to complete), called a "Cup and Handle" (more on this after a look at the two Bitcoin daily charts, below).
Bitcoin Daily Candle Chart for Bitstamp Exchange #1:
Source: https://www.tradingview.com/x/YpRTYmrV/
Bitcoin Daily Candle Chart for Bitstamp Exchange #2:
Source: https://www.tradingview.com/x/9mVK3Xjb/
What You See on Chart #1
The red and green box near the right edge of the chart shows the stop (red) and target (green) area of my planned trade. Please note that there are many other ways to trade this pattern and that I designed this plan based on my own preferred reward to risk profile and trading style (more on why I settled on these trade parameters under trade logic).
The blue line represents the 126 simple moving average (SMA). The red and black lines are the 252 SMA and 504 SMA, respectively. I chose those moving averages to correspond with the number of trading days for the US stock market (there are roughly 252 trading days per year -- 126 represents half of that and 504 is twice that). These are my default moving averages for looking at long term trades; however, they aren't representative of the half year, year, and two year average for Bitcoin, as they are for stocks, since Bitcoin trades everyday (365 SMA would accurately represent the year trading average for Bitcoin).
You'll also see the Cup and Handle pattern highlighted and marked on the chart. The following is a brief definition of the pattern from Investopedia (link: http://www.investopedia.com/university/charts/charts3.asp):
A cup-and-handle pattern resembles the shape of a tea cup on a chart. This is a bullish continuation pattern where the upward trend has paused, and traded down, but will continue in an upward direction upon the completion of the pattern. This pattern can range from several months to a year, but its general form remains the same.
The construct of the cup itself [is] important: it should be a nicely rounded formation, similar to a semi-circle. The reason is that a cup-and-handle pattern is a signal of consolidation within a trend, where the weaker investors leave the market and new buyers and resolute holders stay in the security. If the shape of the cup is too sharp (or quick), it is not considered a true consolidation phase in the upward trend and thus weakens the potential trade signal.
Note that they define one year as a maximum parameter. I don't agree with this part of their definition. I find that patterns which take longer than this to form are even more likely to reach their target.
Speaking of targets, the traditional target for Cup and Handle patterns are, as defined by Stockcharts (link: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:cup_with_handle_continuation):
The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.
In other words, the target is the height of the cup added on top of the cup (100% gain from the breakout, compared to the price bottom of the cup).
You can see on the chart that the handle of the pattern retraces roughly 38.2% the height of the cup, or about one third of its total height. This is one of the "strength indicators" of this pattern. Any retracements beyond this point indicates (statistically, based on historical records of this price pattern) that the trade will be less likely to reach target after breakout (a breakout happens when a candle closes above the high price of the cup, out of the handle).
What You See on Chart #2
It's the same chart as #1, but scrolled up to show the traditional target (labeled as 200% on the chart) and my preferred target (shown as 161.8%).
Also, I added in the 38.3% retracement level of the handle in order to have a logical stop-loss price for this trade.
Trade Pattern/Plan
Wait for a price pull-back to near the top of the cup (breakout level) to enter long (buy). Place the stop below the 38.2% retracement level of the handle. Target 61.8% of the cup height above the entry price.
Trade Logic
I decided to go with a more conservative target than the traditional due to my past research and experience with this pattern indicating that it has a far higher success ratio, to the point that trading every instance of this pattern with my preferred target (a much lower profit margin, compared to risk) will end up paying off more profits in the end.
I settled on 61.8%, specifically, because it has been extensively tested and shown through historical price research to be a statistically significant price ratio level, wherein prices usually find strong resistance to further price appreciation. It is often times the ratio level (with respect to the previous price swing) where price makes a strong correction (giving up significant gains) or starts an opposing trend (potentially giving up all gains and moving into losses).
The entry price is just slightly below the old all-time high prices set back in late 2013. It's a well known fact that prices tend to come back to "test" significant price breakouts, especially when they're price highs that have remained such for many years. I decided to undershoot that price as my entry level because I've noticed in my experience with trading that prices don't usually just stop right at the previous significant price level (the level that we refer to as the price breakout). Rather, they usually dip a bit below those levels (in the case of entering long), as if the market makers are trying to make themselves profits by taking out the most obvious stop-loss levels to trades. So, I figure that I might as well take advantage of that observation, getting myself a better entry price and lower risk in the process :)
I decided on my stop-loss level (38.2% retracement level of the handle) due to the pattern itself showing enough "strength" in the handle formation to never dip below the 38.2% retracement level of the cup. In other words, it has demonstrated a "strong trend", which usually translates to very minor price corrections (dips).
Often times, price retracements behave like a fractal to longer time-frame retracements. In this case, because the handle of the pattern only dipped about 38% into the cup, assuming it behaves "fractally", shorter term dips shouldn't retrace any further than this amount on any following price swings (from the pattern breakout), that is, until the uptrend finally gives way to a major correction or new (down) trend.
SUGGESTION: When Trading Any Type of Market, Have a Plan, Based on your OWN Logic, and Know Your Risk!!!
Also, please be a strong person who can take responsibility for your own decisions. When you willingly put your own capital at risk, any loss you take on is solely on YOU, as you are the person who ultimately hits the "buy" button.
You're an Adult and I Refuse to Hold your Hand
What you see in this post is merely my opinion on what I consider to be a relatively sound trade opportunity, nothing more. Do your own research and have some knowledge before you go and start trading off of other trader's suggestions. Don't be a blind man following a stranger's words on how to traverse a busy highway. Don't be a fool, ya hear?
Be a Playa Like Me ;)
Deuces.
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