Bitcoin’s Rally at a Crossroads: Beware of Profit Takers

Bitcoin is up 86% since November 2022. Why should traders take (at least partial) profits?

Traders who have been profitable over a prolonged rally, such as early Bitcoin buyers before an extended rally, may choose to sell or exit at least part of their position at a price considered a “cross” in terms of technical analysis for a number of reasons:

1. Profit taking: After large gains, traders may choose to realize some of the profits by selling part of their holdings. This is a wise decision as it allows them to lock in profits while reducing their risk exposure, especially if they feel that the market will soon reverse or consolidate.
2. Technical analysis sometimes it involves identifying significant resistance levels or price areas where selling pressure is expected to increase. Traders may choose to sell at these points in anticipation of a possible reversal or slowing of the market’s upward trend.
3. Selling at a technical crossroads can be part of a trader’s whole risk management strategy. Traders can reduce their exposure to likely market declines by taking some profit off the table while still holding a position in the asset if the rally continues.
4. Psychological biases: Market participants often face psychological biases such as FOMO or the endowment effect, which can affect their decision making. By establishing a firm starting point based on technical analysis rather than emotional reasons, selling at a crossroads can help traders overcome these biases.
5. Rebalancing the portfolio: To maintain their target asset allocation or risk exposure, traders and investors may need to rebalance their portfolios periodically. If a specific asset, such as Bitcoin, has performed very well and has grown to make up a larger portion of the portfolio, selling some of it at a technical crossroads can help return the portfolio to its target allocation. This procedure helps to maintain the desired risk profile and diversification strategy.
6. Follows trends and trading strategies: Many traders base their trading methods on technical analysis, and these systems can specify specific entry and exit points based on chart patterns or indicators. As a result, selling at a technical crossroads can simply be part of a trader’s prearranged strategy.
7. Market liquidity: Trading volumes tend to grow at hubs due to increased interest and convergence of various market participants. Due to the improved liquidity, traders may be able to execute larger orders without significantly affecting the market price.
8. Predict market reactions: Skilled traders are aware that other market participants make use of technical analysis and may take similar action. Traders can try to prevent future selling pressure from other market participants by selling at a junction, securing a better exit price for their position.

Bitcoin Technical Analysis (Video): Bears are likely to arrive

The recent Bitcoin boom has piqued the interest of crypto traders and Bitcoin buyers worldwide. With an increase of 86% since November 22, reaching a peak of approximately $27,840, many traders are wondering if it is time to take profits.

Profit taking appears to be on the horizon, according to the following BTCUSD technical analysis.

The trading channel presented in the technical analysis video, with enough contact points on both the upper and lower bands, suggests that Bitcoin is approaching a potential turning point. The anchored VWAP (Volume Weighted Average Price) from the November low has also played an important role in sustaining the price during previous downturns, and now the price may soon react to its second higher standard deviation (some algos will play this).

As Bitcoin approaches the upper band of the channel and a possible wedge pattern, traders may see this as an opportunity to lock in some profits before the next move. A likely near-term price downside target is about $24,300, which corresponds to an August 2022 pivot high.

However, if Bitcoin continues to rise and reaches around $29,800, the current gloomy stance may need to be reconsidered. A daily candle close above $29,350 could indicate that the rally will continue and that the $30,000 level will be tested.

To summarize, today’s technical analysis implies that profit-takers may soon enter the market, resulting in a short-term decline in Bitcoin’s price. Traders should keep an eye on key levels and be ready to change their strategy as the market develops, according to the analysis in the above bitcoin technical analysis video. Trade BTCUSD at your own risk and visit ForexLive.com for more views.