Litecoin 2018: The Downtrend and Breakout

 

Litecoin is back with a vengeance in February, breaking out of a long term December downtrend on the announcement of the long-awaited LitePay release! Litecoin, LitePay, Downtrend?  If these concepts and names are foreign to you then you’re in the right place.  Every week we conduct an in-depth analysis of a cryptocurrency trade and what to look for in the future.  From here on we’ll assume you have working knowledge of Bitcoin (at the least) and have read our Verticals Breakdown.  If not, hop on over to this article before proceeding.

The Basics

So Litecoin sounds great in comparison to it’s older, slower brother Bitcoin, but then why was it in a massive decline since the end of last year?  To put it short, profit taking and panic selling off negative news of creator, Charlie Lee, completely cashing out of his coins in December. We’re not going to get into the weeds here on why he chose to do so, rather we’ll focus on the recent breakout of the downtrend this month, what caused it, and where we see Litecoin going in 2018.

Technical Analysis: The LTC Downtrend

Below we see the basic technical chart for Litecoin from December 2017 through March 2018.  Litecoin began its mega-bull run in early December 2017 when it roared from roughly $80 /coin up to $420/coin, a massive 425% gain in a little over a week. Unfortunately for investors who didn’t cash out at these highs, Litecoin retraced, and hard.  From December 12th, 2017 to February 6th, 2018, Litecoin erased almost 95% of the original surges gains and ended the day around the $110/coin range.   For novice traders, see that a simple trend line can be drawn from the highs of 2017, down across the peaks of every subsequent attempt to regain those highs (represented by the downward sloping blue line).  The price was unable to break above this blue line with any vigor until February 13th, where we see a massive green candle extend through our blue downtrend line denoted by the “BREAKOUT CONFIRMED” box on the chart.  Trading Tip: Look for an increased amount of volume vs the previous day’s trading action to feel more confident in any upward move.  If we look directly below the “BREAKOUT CONFIRMED” text box, it is clear that green trading volume bar on February 13th is substantially higher than any day of trading volume in the past 2+ months!

 

Technical Analysis: Support/Resistance

So our downtrend is broken and confirmed with significantly higher trading volume, what next?  Now the real battle begins.  In any attempt to reclaim former all-time high prices there will be levels of price resistance and levels of price support.  To visualize this we will use a trading tool called the Fibonacci Retracement Levels.  The basic theory behind this is that in every run up in price, there will be levels of profit taking and re-investment.   Let’s start from around the beginning of the run at ~$100/coin and set that as our zero point.  It then ran up to $420 but closed that day around $380/coin.  Let’s set that $380 price point as our 100% of the run.  From there, Fibonacci Retracement Theory says that the price will “retrace” or sell-off to certain levels from the high price.  Common levels traders look for are the 78.6 / 61.8 / 50.0 / 38.2 retracements.    Taking a quick glance at the chart for the Litecoin run-up and subsequent retracement, we clearly see after the price rose to $380 it quickly fell down into our teal region (61.8 retracement level), before attempting to surge again to all time highs.  As stated above, a mix of profit taking and panic-selling drove the price down to the almost zero retracement level before catching wind in February.

Fueled by a fresh round of rumors and positive news from LitePay, the price surged through our downtrend line up to almost $240/coin.   Another advantage of using a visual like Fibonacci retracement is that they can act as a quick support/resistance snapshot for a trade in an uptrend.  Every support level on the way down will now appear as a resistance level on the way up.  The breakout on February 13-15th drove Litecoin back through the first two resistance levels and established them as support for the future uptrend (Support 1 =$207 , Support 2 =$166).  Looking forward to March on the chart we can see these two support levels below the current price of $213 and the looming resistance levels of $240, $273, and $320 above.  It would appear that traders took profits as the breakout approached the first resistance level of $240, causing it to sell off towards the first support level of $207.  For any sustained uptrend we look for Litecoin to break through the first two resistance levels ($240/$273) with increased trading volume as we saw in the original February 13th breakout.

Looking ahead for Catalysts

Hopefully that basic analysis got you comfortable with the relevant trading levels Litecoin is facing in the comings months.  A common technique for traders is to set their sells around resistance levels and buy back in around support levels, rinse, and repeat. Many will choose to hodl long term.  But if you’re a Litecoin bull, 2018 looks to be your year!  Looking ahead, Charlie Lee has promised three more major announcements but has not specified a distinct time frame for any:

All-in-all Litecoin is a must-watch crpytpocurrency for 2018.  With the momentum built from the February 26th launch of LitePay and the buzz around Charlie Lee’s future annoucements we look for this coin to regain it’s all time highs before we have to talk about any more sustained retracements!

 


Jeff Wiand

Avid Blockchain and cryptocurrency investor. Co-Founder of SolveTheLedger, a blockchain/cryptocurrency market research site. Certified Patent Agent before the United States Patent and Trademark Office. Passion for software development, web development, social media, technical analysis, and building teams. Currently pursuing a Master's of Science Degree in Computer Science with concentrations in Artificial Intelligence and Distributed Systems from DePaul University in Chicago, IL. Earned a Bachelor's Degree focused in Mechanical Engineering from West Virginia University.

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