Volatility Supports a Long Entry on BTCUSD
Updated
On the 4h chart, we have become approximately rangebound by overhead compressing periods between the W 200 SMA - which is where we bounced this past December and was the main support we adhered to and retested repeatedly while forming the bottom in 2015, and the implied pivot for mean reversion on the longest overexpanded period created by the November drop.
This is a clean setup. We have a good R:R entry with a target at 4100, which should be a very difficult confluent resistance to overcome. An intermediate target would be the halfway point around 3700 which has acted as a center pivot repeatedly during the compression of the past month and a half.
The degree to which we've compressed also suggests that we have compressed enough to be able to to install a strong trend if we broke the W 200 SMA down or broke upwards past the 4000-4200 area. To the downside, there's been some contradictory targets implied by the W chart depending on exchange, with the Bitfinex chart implying that we've reached the target of the W 200 SMA but the BLX chart suggesting a somewhat higher period length is correct with a target a bit under 2000. It should be noted that we don't necessarily need to drop now to fulfill that target; after all we compressed for most of 2018 before we had our current -50% move. To the upside, the mean reversion target aligns with a retest of 6000.
Note here that with this type of approach, we typically use an indicator like a 14-period CCI rollover as our trigger for entry to help confirm that we have stabilized enough in the short run to be able to confidently enter given the condition created by the setup. At the time of this writing, the 4h 14-period CCI is hovering around -100 on the yet-to-be-closed candle after rolling up on the previous bar, so I'd say this is close to ready if not ready.
The path of least resistance is to remain rangebound and keep bouncing between pivots for possibly months longer. We are at the bottom of that range, so R:R is favorable for a long entry.
If you'd like to learn more about the indicators used to produce this chart, check out SharkCharts.live, and DadShark's Youtube channel where you can find his daily livestreams applying this methodology as well as the series of overview videos I've released for these indicators.
I am an amateur and you shouldn't take anything I say as financial advice. I'm interested in any feedback.
This is a clean setup. We have a good R:R entry with a target at 4100, which should be a very difficult confluent resistance to overcome. An intermediate target would be the halfway point around 3700 which has acted as a center pivot repeatedly during the compression of the past month and a half.
The degree to which we've compressed also suggests that we have compressed enough to be able to to install a strong trend if we broke the W 200 SMA down or broke upwards past the 4000-4200 area. To the downside, there's been some contradictory targets implied by the W chart depending on exchange, with the Bitfinex chart implying that we've reached the target of the W 200 SMA but the BLX chart suggesting a somewhat higher period length is correct with a target a bit under 2000. It should be noted that we don't necessarily need to drop now to fulfill that target; after all we compressed for most of 2018 before we had our current -50% move. To the upside, the mean reversion target aligns with a retest of 6000.
Note here that with this type of approach, we typically use an indicator like a 14-period CCI rollover as our trigger for entry to help confirm that we have stabilized enough in the short run to be able to confidently enter given the condition created by the setup. At the time of this writing, the 4h 14-period CCI is hovering around -100 on the yet-to-be-closed candle after rolling up on the previous bar, so I'd say this is close to ready if not ready.
The path of least resistance is to remain rangebound and keep bouncing between pivots for possibly months longer. We are at the bottom of that range, so R:R is favorable for a long entry.
If you'd like to learn more about the indicators used to produce this chart, check out SharkCharts.live, and DadShark's Youtube channel where you can find his daily livestreams applying this methodology as well as the series of overview videos I've released for these indicators.
I am an amateur and you shouldn't take anything I say as financial advice. I'm interested in any feedback.
Note
We are still following the bottom of the compression band, sitting near the W 200 SMA. Going sideways for a week along the bottom of the range has lowered the target area of resistance overhead to ~4000.
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Perfect.
Some amount of luck to hit that cleanly, but the point is that this is a good area to look for a bounce, and a break should be expected to reactivate a very harsh trend. I would be really surprised to see us lose this level and only drop a few hundred and bounce rather than breaking down violently. Arguably, there's the M 50 SMA around 3100, but I really don't see why this wouldn't just keep going and going and going as continuation of the November trend.
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Took a bit longer than expected for the original idea to play out, but it's playing out now.
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We are currently sitting on our pivot to either continue up to test 3900-4000, or drop back down.
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This is starting to get pretty do or die. BTCUSD, given the opportunity to continue, just plain hasn't. Instead, we appear close to completing lateral mean reversion from the earlier February move.
For a week, BTCUSD has been wicking below the D 50 SMA, and in the past few days ETHUSD and ETHBTC are both doing the exact same. That strikes me as pretty bearish, and at the very least that a rally though these levels will probably not be particularly organic.
We're as compressed as November (in relative terms) on the D. I do not expect the bottom to hold on another retest right now. If we rally test the pivots above us, that's trickier to figure out I think, because they've never been tested and we don't have to exit the compression range to get there. Presumably that favors a scenario with a weak test up and rejection that puts the bear div writing on the wall of every oscillator, but should we break through it's likely a proper breakout on high volume with a target in the high 5000s.
This is all a long-winded way of saying we're stalled in the middle of a range and it could go up or down and I don't really have a strong directional feeling anymore. My weak directional feeling is that we've nearly exhausted the opportunity that the bulls had to push, and that they've run out of chances before the bears smell blood.
Note
I will add this, lest the above leaves the impression that I'm completely bearish. BTCUSD stopped trending down locally in the past couple days, and has been rounding out as it completes its local mean reversion (1h 275 MA). While it clearly couldn't push through the D benchmark on that first move, what it hasn't done is show local weakness recently. It's got more chances locally, and probably hasn't made its strongest test yet.It is, however, running out of time. If you aim at the king, you'd best not miss. The king this week is apparently the D 50 SMA.
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We crossed the 50 MA today. The time has finally come to test our pivots upwards.
We cross (and print closes) over 4000 and I think we've got a decent rally to somewhere 5500-6000 in the next couple weeks, possibly all in one week given the CME futures calendar.
ETHBTC broke the D 200 SMA. A rally in BTCUSD to my mind means something very very large happens in ETHUSD; a rejection at these levels is less obvious given that we'd expect more than zero support to develop on ETHBTC.
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We have arrived at our pivots.
Volume on BTCUSD and ETHUSD - the only two coins that have most of their volume in fiat/stablecoin pairs, continues to rise.
This is the region, from 3800-4000 where we'd expect some resistance, consolidation, and a bigger pause in trending than we've seen so far.
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We have stabilized above the pivot and are holding it on backtests.Should we end up losing 3800, this will need some rethinking, but otherwise it looks like we're going to get our first strong rally on any similar scale to the November drop.
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First leg today has brought us to the top of the compression range.
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Everything I'm looking at today suggests that we're on track to break compression upwards. Ranging down to the pivot at 3800 would have seemed very reasonable here but there's just so little red volume on local volatility on this first leg that I'd rather just stay long right now, expecting further legs.Note
Second leg within 12h time has come and BTCUSD is now above the W 200 EMA
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Unfortunate but not yet spelling doom. Good reminder that trailed stops will save your skin and you should be especially meticulous when things have gone strongly your way several moves in a row.
ETHUSD initially danced a bit around its long-run mean reversion pivot in late December. The local pivots/distributions clearly made it known that they were getting exhausted.
More local volatility is a good sign for trend strength, though this was a bit more than I'd have hoped for and the key is not to miss reversal by ascribing it to just being more local volatility. I maintain my long bias at the moment
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I stopped updating this idea, but today in a single candle, we pretty much completed the picture.
I'd be a bit surprised if we don't range higher to do a proper mean reversion test in the coming days to weeks. I'd be pretty surprised to see us push higher than that 5200-5300 level on our first try, but if actually we did and held it, presumably 7000 is on the table. If that sounds bonkers with 6k being such an obvious pivot, I think it's worth remembering that this is a market that makes a habit of going exactly as far as it needs to trap people no matter how ridiculous before violent reversals.
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We did the thing!
Broadly speaking, my anecdotal experience with crashed cryptocurrencies is that they usually dump at least once after reverting to the long run implied mean. Either way, we would expect the containment zone around that mean to act as very strong resistance above or support below as price trades laterally and recompresses. Since this is somewhere around 1800 period on the 4h, that's another way of saying that we've probably got a long year of compression ahead before a proper bull run or a crash to new lows.
My volatility-based indicators are available for sale at SharkCharts.live
Feel free to reach out to me with any questions; more information is available on the SharkCharts website and the SharkCharts discord discord.gg/YVpTeSK
Feel free to reach out to me with any questions; more information is available on the SharkCharts website and the SharkCharts discord discord.gg/YVpTeSK
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