Chart Of The Day: Bitcoin Could Be Heading To $90,000

At time of publication, Bitcoin, which hit a new record high on Tuesday by breaking through the $68,000 level, has retreated. Still, the token continues to trade near its benchmark level, maintaining its rally for now, which has extended into a fourth day.

On Monday alone, Bitcoin surged 6.7%. Over the course of the current four-day rally the cryptocurrency is up 11.4%. Analysts of the asset class are crediting the record breaking gains to a supply squeeze amid growing global interest in cryptocurrencies. The market cap of the entire digital asset class was boosted by the move, exceeding the $3 trillion mark for the first time on Monday, raising the total valuation for the entire cryptocurrency market by more than 280% this year alone.

Whether or not the fundamentals justify the current price action, the recent upmove initiated a technical momentum chain reaction that could take Bitcoin toward $90,000. 

BTC/USD Daily

Yesterday, Bitcoin completed a bullish pattern when the price formed a possible pennant since the Oct. 20 high, the token's previous all-time high.

A pennant is a continuation pattern that tends to develop after a fast, hot run-up of prices.

While we're not crazy about the congestion before the pennant (green oval), considering the preceding 62% breathtaking rally in just three weeks, we're willing to relax the textbook rules regarding the makeup of a pennant. Also, we might consider the pattern an upward sloping H&S top that blew out, which could force investors to reverse shorts into long positions.

The measuring technique is the difference between a failed H&S top, considered bullish, and the pennant.

According to the requirements for a pennant, if the price action follows through, we might expect the preceding $25,000 move to repeat itself. However, if a technician thinks that the pattern is a failed H&S top, they will expect the following advance to repeat the height of the shortest part of the H&S.

Both measures are from the point of breakout, about $63,500.

If it's an H&S, the price target would be +$6,700, measuring from the Oct. 20 peak to the Nov. 6 low. However, if the analyst believes they're seeing a pennant, they'd measure the rally since the Sept. 9 bottom. That would provide the objective of +$25,000 from the $63,500 breakout.

Trading Strategies

Conservative traders should wait for a return move that would retest the support of the pattern.

Moderate traders would wait for the pullback for a better entry if not for confirmation.

Aggressive traders may enter a contrarian position, shorting an expected corrective dip after a record-setting move, but only if they accept the higher risk that comes along with the higher rewards of moving before other traders. A coherent trading plan will separate the traders from the gamblers. Here's an example:

Trade Sample - Contrarian Short Position

• Entry: $68,000
• Stop-Loss: $68,500
• Risk: $500
• Target: $65,000
• Reward: $3,000
• Risk:Reward Ratio: 1:6

Author's Note: The point of this sample is to illustrate the basic requirements of a trading plan. You need to learn to develop one for your needs, including your budget, temperament and timing. Until you do so, feel free to use our samples for educational purposes only. Don't expect to profit from them. You may win with an individual selection, but we guarantee you will lose in the long run if you don't have a customized trading plan.