Many crytpos have been breaking out of ranges on the higher time frames the past few weeks. This has brought huge momentum back to the cryptocurrency markets, and we are seeing some massive moves in Bitcoin and other altcoins. In order to capitalize on this momentum, you need to be able to recognize chart patterns that will allow you to get in early before a big move is made, and also give you great risk versus reward to the capital you put in. Here is one of my favorite patterns I use regularly to capture big returns in a short period of time in cryptocurrencies:
More Tests = More Potential For Explosiveness
The best momentum range breakouts take time to form. The more time that goes by and retests of a level you get, the more likely you are to get an explosive breakout that follows through. This is exactly what happened to Bitcoin Cash recently. Check out its daily chart and its 30-minute chart:
BCH was on our watchlist the past few weeks because of the strong daily chart trend it has had the past couple weeks. You can see how on the 30-minute chart how many tests we had of that 1370 level. Right after we got that 3rd test of that level, right after making a series of higher lows, we were on watch for a breakout.
Wait For A 9 EMA Retest And Hold
Once you get multiple tests of a resistance level, you should be on watch for a pullback to the 9 EMA right below the breakout level. That is exactly what happened with BCH a few days ago. You can see the red circle over the point where it pulled back right to the 9 EMA before making the big move. Right at that point is when we got long in our chatroom, anticipating the break of that 1370 level. When day trading cryptos, I typically use the 15-minute and 30-minute charts, while aligning my setups with the trend and patterns on the daily chart.
Scale Out Into Strength: Use Whole Numbers and Daily Resistance Levels
Cryptos will move fast in a short period of time after having these types of range breakouts. When trading momentum range breakouts, a great way to know when to sell is to use psychological whole numbers and daily resistance levels. Selling a 1/3 or ½ of your position into these levels will allow you to get some cash flow, while also keeping you in a position to capture a bigger move. You can see on my BCH trade how I scaled out near the psychological 1400 level:
You can see how fast these crytpos moves with this pattern when it forms. BCH gave a 60+ point move in under 3 hours. The BCH trade is a great example of the potential gains that can be made when you trade momentum range breakouts in cryptos correctly.
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Kunal Desai is an American day trader (stocks and cryptos) and founder of Bulls on Wall Street and Bulls on Crypto Street, two online trading academies and informational publications. He has been featured in many high profile publications like Inc, Forbes, Buzzfeed, and Fortune. He has spoke at trading and business events all across the World.