I am back traders, the market had a pull-back yesterday when Bitcoin plunged over $500 down from its ATH at $4970 (on BITFINEX) only to recover. It is currently trading around $4650 on Bitfinex.

In bullish markets such as Bitcoin now, it’s easy to get kicked out of a winning trade by panic-selling during shake-outs or by simply over-trading and get wrecked on exchange fees.

That is why today I’d like to introduce you to a very simple, yet very powerful tool which can help you greatly improve your trading decisions. Introducing…..

...the LINE!

The line (or trend line) is the simplest, yet one of the most reliable tool to predict price action in the Bitcoin market. I’d like to add that lines are less reliable for trading altcoins because the price is much more volatile due to low liquidity.

This guide is thus mainly designed for trading bitcoin but if you want to learn more about how to use trendlines to trade altcoins you can go read this article.

Trendline Drawing.

• First you need to identify the market mover. Go to Coinmarketcap's Bitcoin page and look for the #1 market on the list. This market (usually Bitfinex) is called the market mover. The market mover moves the BTC market simply because it has the most trading volume hence has the biggest influence on price action.

• Now go to BitcoinWisdom, select the market mover (Bitfinex in ths example), choose 1D as your time frame and click on the line tool.

Ok, now you are ready to draw your line.

• To draw your trend line in a bull market:
  Your line must start at the bottom of the lowest wick on the chart and make at least two other points of contact with higher-lows so to look like its supporting the price:

• To draw your trend line in a bear market:

Same principle as above except this time the trend-line hovers above the price and connect lower-high wicks instead of higher-low wicks, like this:

Now you're probably beginning to see where this is going so let's move on to how to trade based on trend-lines.

Trendline trading:

Due to its high volume of liquidity and its many professional players, the bitcoin market has a tendency to obey trend lines, sometimes to surprisingly accurate results.

When trading BTC, trend-lines are very useful to determine exit points in bullish markets (a) and entry point in bearish markets (b).

a. When to exit a bullish market:

As the saying goes:

"The trend is your friend until the end when it bends"

This ancient piece of trading wisdom basically tells you that you should let your position ride in a bullish market until there is clear evidence of a reversal. That's where the trend-line comes into play:

This chart tells us that as far as this trend-line is concerned, the market is bullish until we clearly break below it.

Now, in time of great volatility, the price might sometimes stab through the line only to recover above it so you should look for a clear sign of break down before you cut out or take profit.

In case the price really turns bearish, what will usually happen is a failed retest of the prior trend-line followed by a sharper drop in price, we say that a trend line has turned from support into resistance.

It happened during this summer's bear market:

Typically, this failed attempt to break out of a trend-line turned resistance is where most smart traders might want to cut out of their position (or take profit) if the initial dump took them by surprise.

Compare this with how most dumb money traders would react (here on a lower time frame):

As we can see here, on the lower time-frame (60 minutes) BTC has broken through a trend-line but on the larger time-frame (1Day), we're still way above the trendline.

If we break down $4400, then I'll wait for confirmation of a bear trend when the trend line will turn into resistance. If it does not turn into resistance, I'll simply hold my position and wait for more price action.

Now, let's explore the bearish side of trend trading.

b. When to enter a bearish market:

Trend-line are great to give you confirmation of when a bearish market is about to turn bull again and can help you identify safe entries into a trade, take a look:

In this example you can clearly see that the price touching the trendline two more times gave traders confirmation that the bull was on again, hence the rocket price action that shortly followed.

**

That's it for this guide on how to trade Bitcoin using trend-lines.

If you liked this article, you can learn more on how to use trendlines to trade altcoins in this awesome article.

Please leave your feedback and questions in the comment section.

#bitcoin #cryptocurrency #trading

Trade safe guys, and please follow, resteem and upvote if you like the content.

Dan @tradealert