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Should You Buy the Dip in Bitcoin?

Bitcoin is getting hit hard on the day, but is finding buyers near the 50-day moving average. Here's how to trade it from here.

Bitcoin prices are not performing very well on the day, as the market’s largest cryptocurrency is down about 5% on Tuesday.

However, Bitcoin is well off the session low, which came near $58,560 when it was down nearly 8%.

The recent crypto drop has wiped out billions of dollars in market cap.

Bitcoin isn’t the only one under pressure, as Ethereum is down more than 6% at the time of this writing.

Just yesterday, I pointed out that Ethereum could climb to $5,000 or higher, even though it had declined in six of the past seven days. I wrote that Ethereum:

“Continues to trade above the 21-day moving average and the prior all-time high up near $4,380.As long as it remains above the latter price, I will remain bullish on Ethereum.”

Sticking with Bitcoin, some are arguing that it’s “not naturally going down.”

That may be true. However, we are going to stick to the charts and use the technicals as our guide.

Trading Bitcoin

Daily chart of Bitcoin.

Daily chart of Bitcoin.

The first thing that jumps out to me before the pullback is the trend. The trend has clearly favored the bulls since the late-September low and more broadly speaking, since mid-July.

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Remember, we have to keep in mind that Bitcoin and other cryptocurrencies tend to be quite volatile.

That does not impact our view of the trend. Rather, it impacts the position size that we take in these types of assets. More volatility generally means smaller position sizes. 

When it comes to the pullback we’re seeing on Tuesday, the bounce from the 50-day moving average is the first thing that jumps out to me.

Should this mark the short-term low, bulls want to see Bitcoin reclaim the daily VWAP measure, followed by the 10-day and 21-day moving averages.

Above these measures puts the prior all-time high in play near $64,900. 

However, notice that Bitcoin has had trouble maintaining new highs. That takes a little bit away from the bullish case, even though it’s bullish for it to be making new highs in the first place.

What do I mean by that? 

That the trend still favors the longs, but each time Bitcoin pushed to new highs, it quickly reversed those gains. That’s something to watch, especially if it fails to make new highs amid the bounce.

On the downside, keep an eye on today’s low. Should Bitcoin break it and the 50-day moving average, bulls will anxiously be watching the $57,835 area and the 10-week moving average.

Below these measures and Bitcoin could have some vulnerability down to the $53,000 to $54,500 area.

The bottom line: The trend, while volatile, still favors the bulls. But we need to stay on our toes and watch the 50-day moving average, followed by the 10-week moving average.