How to Analyze Bitcoin Price Moves Before Trading

Why a Structured Checklist Beats Reacting to Price Alone

Price action for bitcoin can range several thousand dollars in just one session, but if one relies solely on charts - he is looking at the results of what had already happened, rather than the causes behind them. Price action without context is by definition ambiguous. There are days when 5 percent decline in price is just a pullback in a healthy trend. It can be a reaction to news related to the regulation, or the beginning of the broader unwind process. Depending on which one is true, traders should act differently, and charts alone cannot help them decide.

This checklist that we propose takes you through each level of analysis sequentially, starting from the broadest context and ending with the signal itself on the chart. None of the levels is a trade signal by itself. Each of the subsequent levels either reinforces or refutes the preceding one, and trade should be considered only when all levels are aligned in the same direction.

Step 1: Check the News and Macro Factors Behind the Move

What should be asked first is if there is an external factor that lies beyond the scope of the chart that influences the current BTC price action. News about regulatory issues, decisions about approval/rejection of an ETF, changes in interest rates by a central bank, and macroeconomic reports can influence the Bitcoin price even before a technical indicator gets an opportunity to react to that.

When the direction of the price corresponds to some known catalyst, the situation is different from when there is a move without any identifiable catalyst behind it. In the first case, the assessment of the move becomes simpler since the importance of the catalyst can be estimated roughly, and in the second one, a more careful approach needs to be taken. A more detailed explanation on what factors can move the Bitcoin price is availablehere.

Step 2: Check Trading Volume

Once the context of the news is identified, volume should be taken into account as the second filter.

The trade which was made in large volume shows more interest for the participants and thus a bigger probability to continue the trend, while the one in small volume implies less interest and higher likelihood of reversal. When considering the volume, it is better to look at how much higher it was than the previous one, instead of simply identifying a busy picture of the chart that fits into the recent range.

Step 3: Identify the Trend

If both the news and the volume are considered, the next thing that has to be taken into account is the direction of the recent move - whether it supports or opposes the existing trend.

The moves which support the trend and are also confirmed with higher highs and lows in case of uptrend or vice versa (lower highs and lows in case of downtrend) are stronger than the moves which oppose the trend.

It is possible to identify the existing trend applying the 50-period and 200-period moving averages to the Daily or 4H chart. In this case, the multi-time frame consideration will be of great importance. If the Daily trend coincides with the 4H trend, then the move is even more reliable.

Step 4: Mark Support and Resistance Levels

Support and resistance levels help us identify previous locations where the price paused or changed direction. These are so called levels of interest, and they allow us to estimate areas where the current trend will likely lose momentum.

A Bitcoin price analysis without this step is a process that lacks a basis for determining an entry point, a stop, and a target.

Levels of support and resistance are determined by identifying the swing high and low prices on the Daily chart and then filtering them on a smaller time frame. The higher the number of times the price touches a level, the more important that level is.Hereis more information about these areas for BTC in particular.

Step 5: Confirm the Move With Indicators

For the final step, RSI and MACD come into play as confirming factors, not as signals themselves. The last resort when the other four steps are confirmed is RSI and MACD to determine whether the trend is confirmed or contradicted.

In case the RSI is in favor of the trade direction, while MACD either crossover or the histogram confirms the same direction, then the probability becomes high. Conversely, the RSI or MACD histogram diverging from the trade direction would indicate a possible signal of caution even though all other four steps might be favorable. To learn more about RSI,hereis a guide to using RSI.

Putting the Full Checklist Together: A Worked Example

For instance, you have Bitcoin news about the approval of a new ETF. BTC price would jump after this kind of news is released. But let’s see how the list goes on in this example:

1. News: There is no problem identifying the catalyst and its significance. Step approved.

2. Volume: There was an abrupt rise in volume, which was significantly higher than 20-period moving average. Step approved.

3. Trend: The price was already above 50-period and 200-period EMAs on Daily timeframe chart and also trending upward on 4H chart. The move is in the direction of the trend. Step approved.

4. Levels: The breakout has breached a certain level of resistance which prevented price from going up two times in last month. Step approved.

5. Indicators: RSI is high but not divergent while MACD has gone bullish with increasing histogram. Step approved.

All the steps approve of the trade. Long position is taken, with a stop below the broken level of resistance, which is acting as a support now.

Common Mistakes When Analyzing Bitcoin Price Moves

There are several typical mistakes people make when only partially following the checklist:

• Reacting to bitcoin news without verifying whether there are volume and trend movements that would confirm the price movement you expect.

• Joining the breakout at the support or resistance line on low volume and then seeing your expected breakout fade away.

• Using RSI and MACD alone as triggers instead of as confirmation after completing the first four steps of the checklist.

• Not paying attention to news at all and opening a position just minutes before a scheduled macro announcement that will move the Bitcoin price USD into the opposite direction.

• Focusing on one timeframe of the trend and forgetting that the higher timeframe is against your intended trade.

Applying This Checklist on Pocket Option Charts

All steps of the checklist can be done on the Pocket Option’s charting interface. The moving averages, RSI, and MACD are added via the indicators menu. Support and resistance can be drawn using the drawing tools on the platform. Volume can be seen under the price pane. The bitcoin news and macro background are verified separately and then added to the chart, not vice versa.

For a more detailed explanation about how Bitcoin trading is facilitated on the platform, see the guide onhow to trade Bitcoin on Pocket Option.

A Note on Timing

Bitcoin is available for trading 24/7, hence, the checklist can be used anytime. In practice, trading peaks during U.S. and European sessions, from Monday to Friday. This is when the most precise signals are formed. Utilizing the checklist during the low-volume weekend hours helps prepare for trading, although such signals have little value.

Practicing the Process on the Pocket Option Demo Account

The checklist should always be performed as it is, in its entirety, each time prior to making a trade. The best and fastest way to develop this discipline is through a demo account, as any errors have no consequences. This allows one to concentrate solely on the process, not the result of each trade.

Analyzing each step of the checklist in a series of demo trades and identifying setups which were valid vs setups which sent wrong signals helps develop pattern recognition skills that cannot be achieved through reading alone.

Final Review Before Your Next Trade

Before entering into the next trade, you have made sure of news, checked for adequate volumes, made sure of trend-move correlation, checked for price being on a key level and made sure the indicators are confirming instead of contradicting each other. With all five points in place, the trade fits the process. Without some of those points in place, you do not take the trade or trade a smaller position.

Conclusion

A structured approach to Bitcoin price analysis involves checking the news, the volume, the trend, the levels and confirmation from indicators in the same order. Not performing an analysis point because you see an obvious trade is why so many traders get false signals and consequently suffer losses. This checklist does not try to predict the market but filters the market. The less number of false signals pass through your analysis process, the fewer losses will occur on your setups.

Disclaimer:Trading is associated with high risks of losing money and may not be suitable for all types of investors. Bitcoin is a highly volatile currency and any past performance of the system described above is not a guarantee of future performance. Backtest your strategy using demo account before applying real money.