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Bitcoin's Low Volume Breakout Could Be a Bull Trap
Bitcoin looks primed for a move to $8,000, but low trading volumes point to the risk of a bull trap.
Updated Sep 13, 2021, 8:01 a.m. Published Jun 4, 2018, 10:00 a.m.
Bitcoin looks primed for a move to $8,000, but low trading volumes point to the risk of a bull trap.
The cryptocurrency broke through a key descending trendline (drawn through the May 6 high to the May 21 high) on Sunday, adding credence to last Tuesday's bullish outside-day candle and signaling a short-term bearish-to-bullish trend change.
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However, at the same time, daily trading volume fell 1.77 percent to $4.85 billion, according to CoinMarketCap. Further, rolling 24-hour trading volume currently stands at $4.95 billion – down 22.5 percent from the current quarterly average of $6.38 billion.
Low volume is a cause for concern for the bulls, as it is widely considered a sign that the market is approaching a peak; that is, the rally will be short-lived.
Hence, a slight pullback seen today does not come as a surprise. At time of writing, the cryptocurrency is trading at $7,591 on Bitfinex – down 2 percent from the previous day's (UTC) close of $7,718.
Daily chart
The bullish outside-day candle followed by a bullish crossover between the 5-day and 10-day moving averages (MAs), and an upside break of the falling trendline, indicate scope for a rally to $8,000.
However, the decline in trading volume over the last seven days puts a question market on the sustainability of the corrective rally from $7,040 (May 29 low) to $7,779 (Sunday's high).
4-hour chart
On the 4-hour chart, trading volume has picked up as prices fell back to $7,549 from the high of $7,764.
The anemic trading volume during the price rally and the later increase in trading volume during negative price action indicates a high probability of a downside break of the rising wedge pattern. In such a case, bitcoin risks falling back to last week's low of $7,040.
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- The upside break of the falling trendline has opened the doors for a rise to $8,000. However, low volumes may indicate a false breakout.
- A downside break of the rising wedge seen in the 4-hour chart would allow a drop to $7,040.
- Only a high-volume break above $7,700 could yield a sustainable rally to $8,000.
Trapped businessman image via Shutterstock
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