It was Thanksgiving last week and the hot topic all over dinner tables throughout the world was about Bitcoin. Older relatives asking younger nieces and nephews to explain crypto-currencies was probably something pretty hilarious to watch by being a fly on the wall of many households.
In the spirit of the holidays, I thought I would post a couple of charts that I think are worth sharing with those family members and friends who are coming out of the woodwork asking about the not so new asset class. While I don’t particularly care about the actual technology behind blockchain, I do think it’s important to focus on the behavior of these markets. This is how we can responsibly calculate risk vs reward propositions. That’s what this is about at the end of the day right? We’re here to make money.
The first chart is of Bitcoin going back to the top in 2013 and fresh breakout this year above those former highs. I explain the math and methodology behind these levels in a prior post titled: What If The Bitcoin Bubble Already Popped?
Over the past couple of weeks we exceeded our 7400 target which now gives us a brand new risk vs reward proposition which is once again skewed very much in favor of the bulls:
As I explain here, these Fibonacci extension levels act as both support and resistance. You can see just how clean it’s been in this chart above. Moving forward it’s very simple: we only want to be long Bitcoin if prices are above 7400. If we’re below that, then I see no reason to be involved from the long side. Target-wise, I think that 11,900 area looks like a good place to take profits for this particular risk vs reward opportunity.
In the past, the trade was very similar. We only wanted to be long Bitcoin if we were above 4600 with a target above 7400. The thought process is exactly the same here, except that we’re replacing the risk vs reward with 7400 as the risk level and 11,900 as the target.
Looking at Ethereum, prices have been consolidating in what many technicians might consider to be a bullish continuation pattern. We normally see an upside resolution after a market has been in a range, but within the context of a longer-term uptrend. This is what we have here. So the fact that we are breaking out to new all-time highs should come as no surprise:
Based on similar projections made in the charts above for Bitcoin, our next upside target for Ethereum is above 580. From a risk management standpoint, we only want to be long if we’re above 410. If we’re below that then I see no reason to be involved from the long side.