Early this week, I sold my shares in Bitcoin as it began "living" below the 50-day moving average. Although I am still very bullish on Bitcoin long-term, I don't like to hold positions that are consistently below the 50-day moving average. It just doesn't fit my style. I prefer to free up my cash in order to look for another entry point. Although I took a loss on my most recent buy around $60,000, I locked in gains from previous buys from around $12,000 and $33,000. Psychologically, it can be very difficult to hold through sharp pullbacks and it's just not something I personally want to do, especially with something like Bitcoin which is notorious for both large rallies and large declines. Volatility often seems easy to handle in hindsight, but is extremely difficult to handle in real time.
It's important to note that Bitcoin topped just around the time Coinbase ($COIN) had its' initial public offering. Isn't it funny how it always seems to work out like that? Just when the everyone gets excited, the it's time to exit. The market is a cunning and cruel master.
Just because I sold Bitcoin, does not mean I am completely tuning it out. There are two scenarios in which I plan to reenter Bitcoin. The first would be if it can find support off a key price level or key moving average. The 100-day moving average has been acting as support over the last few days and that is a level I always like to look at once the 50-day moving average is lost. Although it's great to see some support over the last few session, I'm not ready to reenter just yet. I would first like to see some heavy buying coming in to indicate the buyers are back in control.
The $35,000 to $40,000 level is a range I will be watching as well as it coincides with a prior breakout level and the 200-day moving average. It also would make sense as a Fibonacci replacement area. The $30,000 level is also a possible area of support, but that would entail a more than 50% decline from Bitcoin's prior high. This is not something I think is likely to happen, but anything is possible.
I'm also monitoring Bitcoin to see if I can reenter on strength. Although the last breakout failed, it is very possible that Bitcoin may be forming a new base which will offer new entry points in the coming weeks. It's very important to be flexible as anything can happen.
All in all, I'm happy to wait patiently for Bitcoin to give me another entry signal. Flexibility is crucial to a trader's success. Sometimes, that means being willing to buy on a pullback, sometimes it means waiting to buy a breakout. And of course, it sometimes means having to cut a position that has started to turn against you. Flexibility is an important trait to have in life, especially when trading Bitcoin.
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