BTC: Don't Catch a Falling Coin
Updated
Primary Chart: BTC's Right-Angled Triangle
"Don't catch a falling knife" is an oft-quoted aphorism among traders and investors. At its core, it's a warning about the dangers of buying into a downtrend or sharp drop before price has shown evidence of a bottom. Of course, there are profitable trading moves around buying dips in uptrends, and this cautionary phrase is not meant to address that situation. And some expert traders frequently do attempt to catch falling knifes at key supports, with tight stops, and with smaller position size, while acknowledging the low-probability nature of the obvious countertrend play.
BTCUSD has experienced a severe ten-month downtrend since its all-time high. Experts have debated far and wide whether cryptocurrencies such as BTC and ETH and others have put in a lasting bottom or whether new lows are ahead.
To attempt to catch the bottom in BTC now is as risky as it was back at the end of March 2022 after BTC's first bear-market rally. To buy BTC now, especially blindly and without a trading or investing strategy, is a lower probability bet than waiting in cash (for investors) or positioning on the short side (for traders). This is a time when the saying "don't catch a falling knife" applies. The author acknowledges, however, that fundamentally oriented investors may have reasons apart from technical charts to buy BTC for the very long term that may indeed remain valid. But even some well-known fundamentally driven professional money managers in this decade do not just ignore what the technicals and price trends shown on the charts are saying.
BTC's Established Downtrend Since November 10, 2022
BTC has remained in a severe downtrend since November 2021 when it made an all-time high at $69,000. The Primary Chart shows a basic downward trendline where each bear rally has found resistance. Note also how this downward trendline rejected price repeatedly several times in late March and early April 2022.
Once again this week, just when many wondered whether BTC was about to prove that its June 2022 low was a lasting one, BTC reversed right at this trendline. This trendline is also shown by the zero line of the Fibonacci channel, drawn on the chart below
Supplementary Chart A: Fibonacci Channel for BTC
The Primary Chart also shows that price has held above key support at June 2022 lows in recent months, which causes BTC's price action to form a sizeable right-angled triangle. Unlike symmetrical triangles, right-angled triangles imply a breakout direction. Martin Pring, a well-known technical expert, writes: "The symmetrical triangle does not given an indication of the direction in which it is ultimately likely to break. The right-angled triangle does, with its implied slanting level of support or resistance." But one cautionary point Pring makes is that triangle breakouts experience retracement moves frequently. If the original breakout is missed, some savvy traders often move in to catch a backtest if one occurs.
Recent Confirmation of BTC's Downtrend
BTC has confirmed its downtrend remains viable this week. Price tried to break above the downward trendline shown on the Primary Chart above. But it failed right at this resistance level.
BTC has also tried to break and hold above three anchored VWAPs from the past several months. Each VWAP is placed at a key level of support / resistance at a recent swing high or low. The first is the anchored VWAP from May 31, 2022. The second is the VWAP anchored to the June 2022 low., the third is the VWAP anchored to the mid-August 2022 high. Below, Supplementary Chart B shows these three anchored VWAPs.
More importantly, BTC's chart shows three failed breakout attempts above the May 31, 2022, VWAP. It shows five failed breakout attempts above the VWAP anchored to the June 2022 low. It shows one failed breakout attempt as to the VWAP anchored to the mid-August 2022 peak.
Supplementary Chart B: Three Anchored VWAPS
The most recent breakout attempt during the first week of September 2022 was notable for its speed and force. Within a mere six days, BTC's price rose 22.87 percent from the low to high of that swing. Considering that swing, however, most of the gains have been lost in the 3-4 days since its peak on September 13, 2022.
BTC has also lost all its key retracements of this 22.87% six-day rally, except for the .786 retracement. Losing the .50 and .618 retracements of this rally, combined with the multiple failed breakouts above the May, June and August anchored VWAPS, provides further evidence to support the downtrend's continuation in the near term.
Supplementary Chart C: Fibonacci Retracements of 22.87% Rally in Early September
Further, the slope of the 8-day EMA provides a useful gauge of near term trends and momentum. Since the 22.87% rally ending September 13, 2022, the 8-day EMA has decisively begun to slope down again. Price has also crossed below it and found resistance into it. The 8-day EMA has also crossed below the 21-day EMA, a more intermediate-term trend gauge that also has turned down.
Supplementary Chart D: Slope of 8-day and 21-day EMAs
Attempting to guess where the bottom is and blindly buying, hoping that the price will rise, can sometimes work very well. But it fails more often than it works. A more strategic and prudent approach might be to evaluate some of the most simple trend gauges. Tuning out all the news and other noise about potential bottoms, one could consider the 8 and 21 EMAs on this chart, together with the other technical evidence. They have signaled along with the anchored VWAPs that the path of least resistance is lower for now.
Further Evidence from Recent Peak in Momentum
The 22.87% six-day rally in early September was impressive. Without seeing the downward trendline, one might suspect that BTC might be attempting to prove its June 2022 lows were final lows. But not only did price peak right at the downward trendline as one might expect, RSI momentum peaked just below the resistance level formed over BTC's entire summer rally since June 2022 lows. Note how RSI peaked at approximately 61.34 on September 12, 2022, the day before price hit the trendline and reversed lower. This is a common spot where RSI can reach during valid downtrends. In other words, RSI in a downtrend can find resistance at an upper range of 50-65.
Supplementary Chart E: RSI Peak at Resistance on September 12, 2022
The Fibonacci Channel's Dynamic Support Levels
The Fibonacci channel not only provides a clear trend gauge with its zero line, it also provides dynamic levels of support and resistance that run parallel to the predominant trend. The chart below shows the Fibonacci channels parallel lines with annotations pointing to areas of dynamic support where price may reach in the coming weeks. First, the teal line is the .236 retracement, a line immediately below this Fibonacci channel's zero line that runs parallel to it at a .236 proportion of the entire channel. Each of these Fibonacci channel supports are dynamic, which means that they change as time progresses. The teal .236 line would be the first multi-week support to consider around $14,700-$16,500. If this line does not hold, then the next line down, the .382 line (purple) offers support at approximately $10,000 to $13,000 in late September and early October 2022.
Supplementary Chart F: Fibonacci Channel Intermediate-Term Support Levels
Violation of Short-Term Levels Before the Next Trend Move
Before the next downtrend move can occur, however, the June 2022 lows must break. The June 2022 lows lie at $17,592-$17,930. Another key level must also be broken before concluding that June 2022 lows will be tested. This level is $19,223, which is .786 retracement of the entire summery rally for BTC. This 19,223 level also coincides with the other Fibonacci .786 retracement of the early September rally at $19,447.57 (shown in Supplementary Chart C above).
Supplementary Chart G: Fibonacci Retracements for Entire Summer Rally in BTC
Volatility Compression Suggests Directional Move Ahead
Lastly, volatility typically runs in cycles. Volatility compression leads to volatility expansion, and volatility expansion tends to lead to volatility compression. One way to gauge when the next directional move is nearing is to examine volatility. The Bollinger Bands help traders do so. The Bollinger Bands plot a line at a given number of standard deviations above and below a mean. The Bollinger Bands on BTC's chart below are plotted at the default of two standard deviations above and below the mean.
The Bollinger Bands on the daily chart of BTC show volatility has compressed despite the 22.87% move in early September and the sharp selloff since. This suggests a significant trend move is approaching rather than completing. Given evidence of BTC's downtrend being well established, consider that the probabilities favor a downward trend move in the coming weeks associated with the end of the volatility-compression and the start of its expansion.
Supplementary Chart H: Bollinger Bands and Volatility Compression
_____________________________________
Please note that this technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success.
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
BTCUSDT
BTC1!
BTCUSD
BTCUSD
"Don't catch a falling knife" is an oft-quoted aphorism among traders and investors. At its core, it's a warning about the dangers of buying into a downtrend or sharp drop before price has shown evidence of a bottom. Of course, there are profitable trading moves around buying dips in uptrends, and this cautionary phrase is not meant to address that situation. And some expert traders frequently do attempt to catch falling knifes at key supports, with tight stops, and with smaller position size, while acknowledging the low-probability nature of the obvious countertrend play.
BTCUSD has experienced a severe ten-month downtrend since its all-time high. Experts have debated far and wide whether cryptocurrencies such as BTC and ETH and others have put in a lasting bottom or whether new lows are ahead.
To attempt to catch the bottom in BTC now is as risky as it was back at the end of March 2022 after BTC's first bear-market rally. To buy BTC now, especially blindly and without a trading or investing strategy, is a lower probability bet than waiting in cash (for investors) or positioning on the short side (for traders). This is a time when the saying "don't catch a falling knife" applies. The author acknowledges, however, that fundamentally oriented investors may have reasons apart from technical charts to buy BTC for the very long term that may indeed remain valid. But even some well-known fundamentally driven professional money managers in this decade do not just ignore what the technicals and price trends shown on the charts are saying.
BTC's Established Downtrend Since November 10, 2022
BTC has remained in a severe downtrend since November 2021 when it made an all-time high at $69,000. The Primary Chart shows a basic downward trendline where each bear rally has found resistance. Note also how this downward trendline rejected price repeatedly several times in late March and early April 2022.
Once again this week, just when many wondered whether BTC was about to prove that its June 2022 low was a lasting one, BTC reversed right at this trendline. This trendline is also shown by the zero line of the Fibonacci channel, drawn on the chart below
Supplementary Chart A: Fibonacci Channel for BTC
The Primary Chart also shows that price has held above key support at June 2022 lows in recent months, which causes BTC's price action to form a sizeable right-angled triangle. Unlike symmetrical triangles, right-angled triangles imply a breakout direction. Martin Pring, a well-known technical expert, writes: "The symmetrical triangle does not given an indication of the direction in which it is ultimately likely to break. The right-angled triangle does, with its implied slanting level of support or resistance." But one cautionary point Pring makes is that triangle breakouts experience retracement moves frequently. If the original breakout is missed, some savvy traders often move in to catch a backtest if one occurs.
Recent Confirmation of BTC's Downtrend
BTC has confirmed its downtrend remains viable this week. Price tried to break above the downward trendline shown on the Primary Chart above. But it failed right at this resistance level.
BTC has also tried to break and hold above three anchored VWAPs from the past several months. Each VWAP is placed at a key level of support / resistance at a recent swing high or low. The first is the anchored VWAP from May 31, 2022. The second is the VWAP anchored to the June 2022 low., the third is the VWAP anchored to the mid-August 2022 high. Below, Supplementary Chart B shows these three anchored VWAPs.
More importantly, BTC's chart shows three failed breakout attempts above the May 31, 2022, VWAP. It shows five failed breakout attempts above the VWAP anchored to the June 2022 low. It shows one failed breakout attempt as to the VWAP anchored to the mid-August 2022 peak.
Supplementary Chart B: Three Anchored VWAPS
The most recent breakout attempt during the first week of September 2022 was notable for its speed and force. Within a mere six days, BTC's price rose 22.87 percent from the low to high of that swing. Considering that swing, however, most of the gains have been lost in the 3-4 days since its peak on September 13, 2022.
BTC has also lost all its key retracements of this 22.87% six-day rally, except for the .786 retracement. Losing the .50 and .618 retracements of this rally, combined with the multiple failed breakouts above the May, June and August anchored VWAPS, provides further evidence to support the downtrend's continuation in the near term.
Supplementary Chart C: Fibonacci Retracements of 22.87% Rally in Early September
Further, the slope of the 8-day EMA provides a useful gauge of near term trends and momentum. Since the 22.87% rally ending September 13, 2022, the 8-day EMA has decisively begun to slope down again. Price has also crossed below it and found resistance into it. The 8-day EMA has also crossed below the 21-day EMA, a more intermediate-term trend gauge that also has turned down.
Supplementary Chart D: Slope of 8-day and 21-day EMAs
Attempting to guess where the bottom is and blindly buying, hoping that the price will rise, can sometimes work very well. But it fails more often than it works. A more strategic and prudent approach might be to evaluate some of the most simple trend gauges. Tuning out all the news and other noise about potential bottoms, one could consider the 8 and 21 EMAs on this chart, together with the other technical evidence. They have signaled along with the anchored VWAPs that the path of least resistance is lower for now.
Further Evidence from Recent Peak in Momentum
The 22.87% six-day rally in early September was impressive. Without seeing the downward trendline, one might suspect that BTC might be attempting to prove its June 2022 lows were final lows. But not only did price peak right at the downward trendline as one might expect, RSI momentum peaked just below the resistance level formed over BTC's entire summer rally since June 2022 lows. Note how RSI peaked at approximately 61.34 on September 12, 2022, the day before price hit the trendline and reversed lower. This is a common spot where RSI can reach during valid downtrends. In other words, RSI in a downtrend can find resistance at an upper range of 50-65.
Supplementary Chart E: RSI Peak at Resistance on September 12, 2022
The Fibonacci Channel's Dynamic Support Levels
The Fibonacci channel not only provides a clear trend gauge with its zero line, it also provides dynamic levels of support and resistance that run parallel to the predominant trend. The chart below shows the Fibonacci channels parallel lines with annotations pointing to areas of dynamic support where price may reach in the coming weeks. First, the teal line is the .236 retracement, a line immediately below this Fibonacci channel's zero line that runs parallel to it at a .236 proportion of the entire channel. Each of these Fibonacci channel supports are dynamic, which means that they change as time progresses. The teal .236 line would be the first multi-week support to consider around $14,700-$16,500. If this line does not hold, then the next line down, the .382 line (purple) offers support at approximately $10,000 to $13,000 in late September and early October 2022.
Supplementary Chart F: Fibonacci Channel Intermediate-Term Support Levels
Violation of Short-Term Levels Before the Next Trend Move
Before the next downtrend move can occur, however, the June 2022 lows must break. The June 2022 lows lie at $17,592-$17,930. Another key level must also be broken before concluding that June 2022 lows will be tested. This level is $19,223, which is .786 retracement of the entire summery rally for BTC. This 19,223 level also coincides with the other Fibonacci .786 retracement of the early September rally at $19,447.57 (shown in Supplementary Chart C above).
Supplementary Chart G: Fibonacci Retracements for Entire Summer Rally in BTC
Volatility Compression Suggests Directional Move Ahead
Lastly, volatility typically runs in cycles. Volatility compression leads to volatility expansion, and volatility expansion tends to lead to volatility compression. One way to gauge when the next directional move is nearing is to examine volatility. The Bollinger Bands help traders do so. The Bollinger Bands plot a line at a given number of standard deviations above and below a mean. The Bollinger Bands on BTC's chart below are plotted at the default of two standard deviations above and below the mean.
The Bollinger Bands on the daily chart of BTC show volatility has compressed despite the 22.87% move in early September and the sharp selloff since. This suggests a significant trend move is approaching rather than completing. Given evidence of BTC's downtrend being well established, consider that the probabilities favor a downward trend move in the coming weeks associated with the end of the volatility-compression and the start of its expansion.
Supplementary Chart H: Bollinger Bands and Volatility Compression
_____________________________________
Please note that this technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success.
Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
BTCUSDTBTC1!BTCUSDBTCUSDNote
BTC's price experienced selling pressure over the weekend. After last week's substantial decline from the September 13 peak, price could experience some trapping consolidation action where it moves up and retests some key levels. The .618 R level could be retested at 20,160, though it has already been retested since the breakdown and got rejected. But the 10-month downtrend line could also be retested this week at 21,160, and that would be another chance to sell into the bounce IF that occurs.Note
BTC's price experienced selling pressure over the weekend. After last week's substantial decline from the September 13 peak, price could experience some trapping consolidation action where it moves up and retests some key levels.The .618 retracement of the early September rally could be retested at 20,160, though it has already been retested since the breakdown and got rejected. The .618 retracement of the entire summer rally (mid-June to mid-August) is around 20,503. Both these could be retested by a whipsaw move into FOMC.
Ultimately, the strongest resistance is the 10-month downtrend line further overhead that lies around 21,160, and that would be another chance to sell into the bounce IF that occurs.
Note
For the more visual readers, here is my chart with both diagonal and horizontal resistance and support levels going into Wednesday's FOMC presser. Any price moves between now and the Wednesday's FOMC presser, especially price moves above June's low and below the zero line (blue downtrend line that rejected price on September 12-13) is simply just "noise." Note
Update in today's post found here: 
Note
BTC is right at the apex of the triangle shown in the primary chart. It will likely break in one direction or the other soon. Given how choppy / trappy and volatile markets have been lately, expect the first break (maybe the first two breaks) to be whipsaws or traps.Note
Trade closed: target reached
This mid-September 2022 forecast for BTC's downtrend to resume has largely occurred. The Bollinger Bands on the daily chart of BTC had compressed despite the 22.87% move in early September and the sharp selloff afterwards. ST wrote as follows: "Given evidence of BTC's downtrend being well established, consider that the probabilities favor a downward trend move in the coming weeks associated with the end of the volatility-compression and the start of its expansion."The analysis also favored a downside breakout from the right angled triangle which also occurred after some trappy false moves upward first. Although the right-angled triangle experienced a break (that was fairly weak) to the upside (initially a direction opposite from what was expected), this turned out to be a false break and whipsaw move. Price resolved lower after the FTX debacle.
SquishTrade also discussed the relevant resistance levels that had to be broken before further downside could occur. SquishTrade wrote, "Before the next downtrend move can occur, however, the June 2022 lows must break. The June 2022 lows lie at $17,592-$17,930. Another key level must also be broken before concluding that June 2022 lows will be tested. This level is $19,223, which is . 786 retracement of the entire summer rally for BTC. This 19,223 level also coincides with the other Fibonacci . 786 retracement . . . at $19,447.57 ." These support levels all gave way including June 2022 lows, leading to the current downward move that is unfolding in BTC.
The $19,223 and $19,447 levels broke, along with the June 2022 lows in the $17.5 - 17.9K range, which opened up the way for the next downtrending move.
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