Possible Swing Trade setup in BCH
A trade setup is different from an actual trade.
BCH (Bitcoin Cash)
Bitcoin Cash (BCH) functions as a decentralized digital cash system designed for global use. It strives to offer swift transactions, tiny transaction fees, privacy, and a larger block size. Operating without the need for trusted intermediaries, Bitcoin Cash is a permissionless cryptocurrency.
Analysing BCH 4 Hourly Chart
Price has been moving in a descending triangle, which is usually a bearish pattern. However, around the first week of August, when price breaks the support, we can spot a rise in momentum, indicated by a strong RSI bullish divergence.
RSI stands for Relative Strength Index.
Price did escape the support, but the bulls pushed the price once again into the triangle. This is a sign of strength.
That said, the breakout from the triangle is not quite strong. We can see a big red wick post the breakout.
In such circumstances, we can draw a pivot line, indicated by the dotted line, and wait for price to break that consolidation. This is indicated by the yellow projection.
But is this enough? Let’s have a look at the OBV (On Balance Volume).
On Balance Volume (OBV)
…is a technical analysis indicator used in financial markets to measure the flow of volume in relation to price movements. It helps assess the strength of buying and selling pressure by adding volume on up days and subtracting it on down days. OBV provides insights into potential price trends and reversals based on the cumulative volume behavior.
In the above chart, OBV represents the price data.
Just as we’ve spotted a bullish divergence (or rise in momentum in RSI), we can see that OBV is also showing signs of a bullish divergence.
Plus, OBV has given a breakout to the upside, which signifies that volume and asset buying strength has increased. This suggests that it is more likely for an upside breakout than a downside breakout.
What’s next?
It is too soon to fix our bias. Price must give us a break from the consolidation zone (between the purple support box and dotted line pivot).
We must refrain from acquiring the habit of seeking confirmation bias.
Furthermore, since BCH is a crypto asset, it is heavily influenced by Bitcoin’s price movements depending on BTC dominance.
I will wait it out and closely monitor BCH and then decide on a high Risk to Reward swing trade. You can keep it in your watch list too. It goes without saying if price breaks out the purple support and so does the relative strength and volume, we will consider this setup to be null and void.
Update on BCH as of 3 A.M (-7 GMT)
Price failed to close above the pivot, and we can clearly spot a loss of momentum, rendering our trade null and void. This is precisely why we we don’t buy fakeouts.
We must not chase the best discounted price. Instead, we must chase confirmed price movements.