BTCUSD 1HR - Heikin Ashi, Bollinger Bands, CCIOBV & RSI
This is a 1HR BTCUSD chart (BitStamp) using Heikin Ashi candlesticks, Bollinger Bands, EMA (9, 15, 21, 55), a custom CCIOBV indicator and a standard RSI - 5 days of price action review.
Heikin Ashi is another Japanese candlestick pattern and HA actually means ‘average’ in Japanese. It does just that, averaging out price movements using a weighted calculation I won’t cover here (refer to Investopedia). Effectively what you need to understand is that it smoothes out price action by reducing noise and making key trends easier to identify. This is great for trend traders, not so great for day traders that rely on volatility and short term price action.
Over the five days, from the 29th of December until the 4th of January, we have seen prices in a tight range between 3600-4000. The tightening price oscillations and the sideways price action indicates market indecision and a tight battle between bulls and bears. Since the 24th short term top we have one clear lower higher/lower low and a second lower high which I think will be followed by a lower low in the coming hours. Expectations of more bullish price action after the Christmas/New Year’s holiday’s and the 10 year anniversary of Bitcoin on the 3rd of January have not yet materialised. While the traditional financial markets have also become significantly more bearish which may have dampen bullish price action. Note that crypto as a counter cycle asset class has also not proven to be true, as of yet, although this hopefully will change.
Bollinger Bands, the three blue bands that ‘wrap’ around the BTC price, were developed by a guy called Bollinger. The top and bottom blue lines are simple 2 SMA away from the current price, while the line in the centre is the average of the two. The great things about this indicator is that we know, 90% of the price action will occur within these bands. And generally, if the price is at the top/bottom 20% of a band we are likely to see some price action towards the middle of that band in the near future. This is based on the simple concept that price’s oscillate around an equilibrium.
Since the bullish price action on the 28th, the BB have remained fairly tight ranging from 100 - 300 USD. The BB have been pierced by 19 hourly bearish candle wicks and 12 hourly candle bullish candle wicks. This indicates that there is a lack of support for prices over this period of time. If the market continues to move sideways we will see the BB squeeze, with an eventual breakout on either side of the bands and a major price move.
Volume is one of the most reliable indicators but it is important that you understand how much wash trading is happening on most exchanges and choose to trade only on reliable exchanges (read this for more information). The volume is low overall and the trends are weak. I have drawn three clear trend lines to clarify these weak trends. We saw a bearish volume from the 30th to nearly the 2nd, then flip to a bullish until nearly the 3rd, and then a day or so bearish action which may flip in the next few hours. Remember that weak volume goes hand in hand with weak trending (price consolidation and sideways action). For how long before another breakout is the question? IMHO Volume this low tends to indicate that it can’t be long and it the breakout could be bearish .
The CCIOBV is a custom indicator by Lazy Bear (you can get it here for tradingview). It combines two oscillators, the CCI (Commodity Channel Index) and OBV (On Balance Volume) and it’s complex to explain but it provides very interesting information. By simply colour coding the indicators, it is easy to read this indicator. Green for bullish, red for bearish and the Signal indicator is orange. Basically if the CCIOBV is green and above the orange Signal indicator, we are in a bullish trend.
The CCIOBV on the 1HR is set at 9 days, both for the CCI and the EMA. This indicator is very effective for short term trades, even though I am focused on trend trading. I have highlight the key trends, again somewhat similar to volume but turning a half day earlier than the volume trend. If I simply traded based on this indicator alone I would be a successful trader but simply buying and selling the day after the indicator changes colour and by looking at it’s relative position to the Signal line. If read along in conjunction with the RSI and volume, the trend from the 30th to the 1st was bearish, switching to bullish until the 3rd and then bearish again. These shortening cycles also indicate a tightening of the cycles. As you can note, there are several false signals given out on a shorter time frame then the daily, therefore this indicator should be looked on the daily and then the hourly for a better perspective.
The RSI depicts the historical and current strength of price action of a security. After identifying a trend, we can then apply the RSI to help identify what stage in the oscillation cycle and therefore possible future velocity/magnitude moves. Note that the longer the time frame, the more reliable the RSI signal is. An alternative to the RSI , is the Stochastic RSI , which is kind of like the RSI on steroids and it is much more sensitive and therefore more likely to deliver false signals. For a trend trader, this is not ideal. The RSI axis is from 0 - 100, with the below 30 (oversold) and above 70 (overbought) been the real action points on the shorter hourly time frame, and 80/20 for the daily . When the RSI is hovering around 50, this is a neutral zone.
The RSI has displayed the clearest oscillating trend information vs other indicators IMO. Downtrending since the 29th from overbought territory it confirmed a bearish failure swing on the 30th of December (vertical red line). This is when the RSI rises above 70 (considered overbought), then the RSI drops back below 70, it rises RSI rises slightly but remains below 70 (remains below overbought) and then drops lower than its previous low. On the 1st the RSI bounced off the 30 oversold line and then bounced again on the 1st, which confirmed a bullish failure swing (green vertical line). This is when RSI drops below 30 (considered oversold), then RSI bounces back above 30, then the RSI pulls back but remains above 30 (remains above oversold) and finally breaks out above its previous high. It peaked on the 3rd, only 2 days later, and confirmed another bearish failure swing only a few hours later (red vertical line).
Overall I see a clear tightening of the price range on all of the indicators, typical of a price squeeze that will eventually move either way. The candlestick are making lower highs and lower lows, the BB remain within a tight $300 price range, volume is weak and choppy, CCIOBV and RSI cycles are leaning bearish and continue to shorten. The longer this goes on, the more bearish I will get, but it could break out either way and I expect price action sooner than later.
Heikin Ashi is another Japanese candlestick pattern and HA actually means ‘average’ in Japanese. It does just that, averaging out price movements using a weighted calculation I won’t cover here (refer to Investopedia). Effectively what you need to understand is that it smoothes out price action by reducing noise and making key trends easier to identify. This is great for trend traders, not so great for day traders that rely on volatility and short term price action.
Over the five days, from the 29th of December until the 4th of January, we have seen prices in a tight range between 3600-4000. The tightening price oscillations and the sideways price action indicates market indecision and a tight battle between bulls and bears. Since the 24th short term top we have one clear lower higher/lower low and a second lower high which I think will be followed by a lower low in the coming hours. Expectations of more bullish price action after the Christmas/New Year’s holiday’s and the 10 year anniversary of Bitcoin on the 3rd of January have not yet materialised. While the traditional financial markets have also become significantly more bearish which may have dampen bullish price action. Note that crypto as a counter cycle asset class has also not proven to be true, as of yet, although this hopefully will change.
Bollinger Bands, the three blue bands that ‘wrap’ around the BTC price, were developed by a guy called Bollinger. The top and bottom blue lines are simple 2 SMA away from the current price, while the line in the centre is the average of the two. The great things about this indicator is that we know, 90% of the price action will occur within these bands. And generally, if the price is at the top/bottom 20% of a band we are likely to see some price action towards the middle of that band in the near future. This is based on the simple concept that price’s oscillate around an equilibrium.
Since the bullish price action on the 28th, the BB have remained fairly tight ranging from 100 - 300 USD. The BB have been pierced by 19 hourly bearish candle wicks and 12 hourly candle bullish candle wicks. This indicates that there is a lack of support for prices over this period of time. If the market continues to move sideways we will see the BB squeeze, with an eventual breakout on either side of the bands and a major price move.
Volume is one of the most reliable indicators but it is important that you understand how much wash trading is happening on most exchanges and choose to trade only on reliable exchanges (read this for more information). The volume is low overall and the trends are weak. I have drawn three clear trend lines to clarify these weak trends. We saw a bearish volume from the 30th to nearly the 2nd, then flip to a bullish until nearly the 3rd, and then a day or so bearish action which may flip in the next few hours. Remember that weak volume goes hand in hand with weak trending (price consolidation and sideways action). For how long before another breakout is the question? IMHO Volume this low tends to indicate that it can’t be long and it the breakout could be bearish .
The CCIOBV is a custom indicator by Lazy Bear (you can get it here for tradingview). It combines two oscillators, the CCI (Commodity Channel Index) and OBV (On Balance Volume) and it’s complex to explain but it provides very interesting information. By simply colour coding the indicators, it is easy to read this indicator. Green for bullish, red for bearish and the Signal indicator is orange. Basically if the CCIOBV is green and above the orange Signal indicator, we are in a bullish trend.
The CCIOBV on the 1HR is set at 9 days, both for the CCI and the EMA. This indicator is very effective for short term trades, even though I am focused on trend trading. I have highlight the key trends, again somewhat similar to volume but turning a half day earlier than the volume trend. If I simply traded based on this indicator alone I would be a successful trader but simply buying and selling the day after the indicator changes colour and by looking at it’s relative position to the Signal line. If read along in conjunction with the RSI and volume, the trend from the 30th to the 1st was bearish, switching to bullish until the 3rd and then bearish again. These shortening cycles also indicate a tightening of the cycles. As you can note, there are several false signals given out on a shorter time frame then the daily, therefore this indicator should be looked on the daily and then the hourly for a better perspective.
The RSI depicts the historical and current strength of price action of a security. After identifying a trend, we can then apply the RSI to help identify what stage in the oscillation cycle and therefore possible future velocity/magnitude moves. Note that the longer the time frame, the more reliable the RSI signal is. An alternative to the RSI , is the Stochastic RSI , which is kind of like the RSI on steroids and it is much more sensitive and therefore more likely to deliver false signals. For a trend trader, this is not ideal. The RSI axis is from 0 - 100, with the below 30 (oversold) and above 70 (overbought) been the real action points on the shorter hourly time frame, and 80/20 for the daily . When the RSI is hovering around 50, this is a neutral zone.
The RSI has displayed the clearest oscillating trend information vs other indicators IMO. Downtrending since the 29th from overbought territory it confirmed a bearish failure swing on the 30th of December (vertical red line). This is when the RSI rises above 70 (considered overbought), then the RSI drops back below 70, it rises RSI rises slightly but remains below 70 (remains below overbought) and then drops lower than its previous low. On the 1st the RSI bounced off the 30 oversold line and then bounced again on the 1st, which confirmed a bullish failure swing (green vertical line). This is when RSI drops below 30 (considered oversold), then RSI bounces back above 30, then the RSI pulls back but remains above 30 (remains above oversold) and finally breaks out above its previous high. It peaked on the 3rd, only 2 days later, and confirmed another bearish failure swing only a few hours later (red vertical line).
Overall I see a clear tightening of the price range on all of the indicators, typical of a price squeeze that will eventually move either way. The candlestick are making lower highs and lower lows, the BB remain within a tight $300 price range, volume is weak and choppy, CCIOBV and RSI cycles are leaning bearish and continue to shorten. The longer this goes on, the more bearish I will get, but it could break out either way and I expect price action sooner than later.
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