Ecoinometrics - Bitcoin’s price trend: is it a tsunami or just some small wave?

Under the surface Bitcoin’s uptrend could be weaker than it looks.

Except for a single breakout attempt over the past 30 days Bitcoin is stuck in the $27k to $30k range. This is an awkward position to be in. 

On the one hand if you look at the BTC/USD chart you can easily convince yourself that there is some good momentum for Bitcoin. 

But under the surface the move might not mean that much. 

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Bitcoin’s price trend: is it a tsunami or just some small wave?

Following the trend

As someone who likes both systematic trading strategies and strategies that involve taking long term positions by riding big trends you can easily understand why I’m a big proponent of trend following. 

The variations on this strategy are endless, but the core idea is always the same:

• Choose an indicator or a signal that shows price momentum is building in one direction.

• Take a position when that signal comes in.

• Exit the position when momentum dies down.

You don’t care about the market regime, the macro conditions, the why behind every price movement. All you care about is that if there is a trend it must be for a reason. And since historically trends tend to continue (longer than the Efficient Market Hypothesis would make you think) you just ride it out.

That’s a perfectly fine way of trading. And if you follow that model then you are certainly long Bitcoin already. 

Since the beginning of the year the sequence of event went something like that:

• Bitcoin crossed above its 200 days moving average (the long term trend) in January.

• In March it crossed back below its 200 days moving average. But it did so around the same price as the entry level, so whatever position you might have had just ended up flat.

• The next day it was back above its 200 days moving average.

• Now Bitcoin is about 30% above the long term trend and the long term trend is also starting to move upward.