BitcoinShort
FOLLOW-UP: Bitcoin successfully tested the bottom; Now what?
Updated
MAGIC is just a bunch of illusions. But then again, so are Bitcoin spikes.
After very successfully calling out Bitcoin for "testing the bottom" one week ago -- unlike nearly all of tight-pictured ideas on TradingView -- I am back again to check in on our Crypto market leader. BTC just closed above my pink trendline channel. For those that didn't see my first published idea, this trendline connected the lows on 2017-09-15 and 2018-02-06. The channel of this trendline included a price range of +440 for the upper bound and -440 for the lower bound of the pink trendline, giving us a chance to see more of a resistance zone instead of one simple line. Furthermore, in the last 24 hours, BTC flew past the lower bound of my regression trendline, which reflected lows on 2017-09-15 and 2018-04-01. Note that the two trendlines in focus here recently crossed over, with the regression lower bound now having the higher ground.
While breakthrough past the notable trendlines is a major victory for Bitcoin and crypto as a whole, it should be noted that BTC increased by more than 1K in just a 40-minute span. This spike is incredibly misleading when comes to technical analysis, simply because it is an outlier. So maybe this is an unsustainable victory.
Therefore, what we need to do is look a bit deeper to assess the sustainability of Bitcoin above the pink trendline channel. As with my previous charts, I have included the RSI and Williams %R to help indicate if the recent price momentum led to any overbuying and overselling. While RSI has "crossed over" above 50, which is a technical buy symbol for some investors, the %R is actually indicating a technical overbuy on the daily charts. Note that overbuy signals don't necessarily mean it's time to sell right away; the %R must first crossover back inside of the normal range. It's entirely possible a rally continues for a few days while still being overbought. So it's best to say the signals are a bit mixed, meaning we are possibly destined for some sort of decline in the next few days.
The big question now is quite simple: Will any potential regression from the April 12 spike send Bitcoin back into the pink trendline channel? Let's consider that $7642.79 is the pink trendline upper bound for today's candle (April 13) and that $7662.94 is the boundary price for tomorrow. It wouldn't take much, all of roughly a $250 decrease to swing back into that channel.
Overall, I'd say the news is good. Major players like Fundstrat and Pantera are saying that we reached the bottom, so better days are yet to come. Serious institutional money (see: Rockefeller, Soros, etc.) is entering the crypto space, and you'd best believe that those whales will pounce on solid buy opportunities. And if Q2 history has a say, that recovery back to five-digits is possibly in the works for BTC. Ultimately, if you're a regression analyst like me, you'd mostly believe that even if short-term regression sends Bitcoin back into the pink trendline channel, the bottom I called will most likely provide key support to eventually kick-start a run into the bull market.
Don't be fooled by all the illusions. No Elliott wave, bear flag, inverse cup and handle, or fractal can illustrate the big picture quite like simple regression analysis at times when a security is acting like an outlier. My first published idea illustrated where the normal bottom was for Bitcoin. Any confirmed push below those trendlines would've indicated an overselling outlier, thus it is not something you can normally expect. All those calls for 5K, 4K or even 3K were simply ignoring the regression analytics. In fact, they were calling for major outliers to occur, and that is just downright reckless, in my opinion.
However, before we start calling this recent price increase "a win," let's see what the next few days tell us. The sp
After very successfully calling out Bitcoin for "testing the bottom" one week ago -- unlike nearly all of tight-pictured ideas on TradingView -- I am back again to check in on our Crypto market leader. BTC just closed above my pink trendline channel. For those that didn't see my first published idea, this trendline connected the lows on 2017-09-15 and 2018-02-06. The channel of this trendline included a price range of +440 for the upper bound and -440 for the lower bound of the pink trendline, giving us a chance to see more of a resistance zone instead of one simple line. Furthermore, in the last 24 hours, BTC flew past the lower bound of my regression trendline, which reflected lows on 2017-09-15 and 2018-04-01. Note that the two trendlines in focus here recently crossed over, with the regression lower bound now having the higher ground.
While breakthrough past the notable trendlines is a major victory for Bitcoin and crypto as a whole, it should be noted that BTC increased by more than 1K in just a 40-minute span. This spike is incredibly misleading when comes to technical analysis, simply because it is an outlier. So maybe this is an unsustainable victory.
Therefore, what we need to do is look a bit deeper to assess the sustainability of Bitcoin above the pink trendline channel. As with my previous charts, I have included the RSI and Williams %R to help indicate if the recent price momentum led to any overbuying and overselling. While RSI has "crossed over" above 50, which is a technical buy symbol for some investors, the %R is actually indicating a technical overbuy on the daily charts. Note that overbuy signals don't necessarily mean it's time to sell right away; the %R must first crossover back inside of the normal range. It's entirely possible a rally continues for a few days while still being overbought. So it's best to say the signals are a bit mixed, meaning we are possibly destined for some sort of decline in the next few days.
The big question now is quite simple: Will any potential regression from the April 12 spike send Bitcoin back into the pink trendline channel? Let's consider that $7642.79 is the pink trendline upper bound for today's candle (April 13) and that $7662.94 is the boundary price for tomorrow. It wouldn't take much, all of roughly a $250 decrease to swing back into that channel.
Overall, I'd say the news is good. Major players like Fundstrat and Pantera are saying that we reached the bottom, so better days are yet to come. Serious institutional money (see: Rockefeller, Soros, etc.) is entering the crypto space, and you'd best believe that those whales will pounce on solid buy opportunities. And if Q2 history has a say, that recovery back to five-digits is possibly in the works for BTC. Ultimately, if you're a regression analyst like me, you'd mostly believe that even if short-term regression sends Bitcoin back into the pink trendline channel, the bottom I called will most likely provide key support to eventually kick-start a run into the bull market.
Don't be fooled by all the illusions. No Elliott wave, bear flag, inverse cup and handle, or fractal can illustrate the big picture quite like simple regression analysis at times when a security is acting like an outlier. My first published idea illustrated where the normal bottom was for Bitcoin. Any confirmed push below those trendlines would've indicated an overselling outlier, thus it is not something you can normally expect. All those calls for 5K, 4K or even 3K were simply ignoring the regression analytics. In fact, they were calling for major outliers to occur, and that is just downright reckless, in my opinion.
However, before we start calling this recent price increase "a win," let's see what the next few days tell us. The sp
Note
NOTE: TradingView cut off my concluding paragraph after I added a link, and it didn't let me edit it in time. That's what 15 minutes will get ya, LOL.The final paragraph SHOULD read as such: "However, before we start calling this recent price increase 'a win,' let's see what the next few days tell us. The spike from early yesterday may be an illusion, but a sustained increase won't be."
Note
2018-04-14, 9:15pm ESTWell, we've had two days to see what will happen, and there's a little more I'd like to add to the conversation.
So far, we've had one candle close in the red and one candle close in the green. And the current candle is working in the green. Furthermore, as you can see, the price went up well more than $200 in the snapshot below, compared to the chart illustrated above. This is a good sign, as the price hasn't regressed since the 1K spike on the 12th. In fact, the price is currently ABOVE that spike.
The only cause for concern is that the %R still indicates BTC is overbought. However, after two days of relatively little movement, I think it's appropriate to wonder aloud if the measurement itself is flawed in this situation.
For those who don't know %R, it measures the quotient of (1) the difference between the highest price of the past "n" periods (re: 14 days in this case) and the current closing price, and (2) the difference between the highest and lowest prices of the past 14 periods. To apply to this situation, you have a $1701.12 difference between the 14-day high and low, while the current price is well within two hundred dollars of the 14-day high. Therefore, the %R is too close to zero, and BTC is considered overbought.
This particular measurement is best fit to predict regression when a security has generally stagnant movement, only to see a big spike or dip in price over a short period of time. In terms of regression analysis, these spikes or dips would be considered outliers.
Here's the thing, though. Stats are only as good as the context it fits. You can easily misinterpret the usefulness of a certain statistic if you do not properly account for the context at hand.
Now consider the context for Bitcoin. Measuring open to close, BTC traveled fewer than $300 (up or down) on 13 of the last 16 completed daily periods, excluding today of course. Compare that to BTC traveling fewer than $300 on 21 of the previous 60 days. In other words, the recent lack of Bitcoin volatility is more of the outlier than the spike itself. I'd have to do some considerable legwork before confirming, but I'd assume the current $1701.12 high-low 14-day difference would be low compared to Bitcoin's recent history.
So here's my .02: ignore the %R for now. I believe we bottomed out from the 5th and 11th, which I detailed immensely in my first published idea. And when bottoming out like that, even a volatile security like BTC can go generally sideways for a two-week period. Therefore, a spike is going to look remarkable in that tight span, even if it's not. However, we still need to see legitimate movement -- something like $300 per day -- before a bull market is 100% confirmed. Therefore, be very careful with your short-term trades, all the while leaning on the buy side for the upcoming weeks and months.
PHOTO:
Note
Corollary to the most recent comment!A security is considered "overbought" if the %R is better than -20. Therefore, today's closing price (or the next two, for that matter) would need to fall under $7879.77 for BTC to no longer be considered "overbought."
Let's say that happens. Bitcoin would be still well above the upper bound of my pink trendline, which is at $7683.09 for today's candle. Therefore, the %R-based regression doesn't necessarily threaten the trendline channel.
As I said in my OP, "The spike from early yesterday may be an illusion, but a sustained increase won't be." Even if a modest bit of regression occurs to get the %R back to normality, it's looking more and more like Bitcoin has sustained the increase from the 12th.
Put this into context of recent news headlines about institutional money entering crypto and favorably analyzing Bitcoin, and I'd say there's a lot of reason to feel good about Bitcoin's near future.
Note
2018-04-16 10:30am ESTWell, the timing of my last pair of comments is quite funny. Two things of noted happened in the past two days:
1) Yesterday's candle closed out $352.13 higher than it opened.
2) Today's candle currently moved the %R back inside normal range.
Turns a simple way to eliminate the %R problem is to put the 14-day high even higher before you take a dip. We are now dealing with a 14-day high-low range of $1880.10, meaning that the 14-day %R upper bound is $8022.96 with current high-low conditions. Remember, the spike of 2018-04-12 peaked at $8050.00, so if things simply hold here for the next few days, it would exactly be a great sign for the post-spike regression. Personally, I'd feel like we've been store for some more upward movement sooner than later.
I'll note that I've added the 21-day %R. This isn't a suggested length for the %R, but it's honestly tough to say what day-range is best fit for analyzing the crypto space. I suspect longer ranges are better to assess long-term health, given the dynamics of this stat. Highest highs will ALWAYS indicate an overbuy, while lowest lows will ALWAYS indicate an oversell. That's kind of the point of this stat, but it's a highly flawed stat on a tight scale, especially in a volatile space.
Overall, regression was bound to happen to some extent, so the %R was correct. but I'm likely going to eliminate the %R for another indicator once this chapter of Bitcoin movement comes to an end.
PHOTO, 14-day %R:
PHOTO, 21-day %R:
Note
2018-04-17, 6:40pm ESTMy .02 from three days ago proved to be absolutely worthless. Trust the regression!
I just want to update you on the upper bound of my trendline channel, because it's a possibility that it may become support if the BTC decline continues. The contextual signs (re: institutional investing, Q2 precedent, overall growth of the crypto space, etc.) still point bullish, but remember the charts haven't exactly shown that yet. We have just shaken off the bearish trends and moved more horizontal than anything else. For now, we are neither in a bear or a bull market. Ignore the noise claiming otherwise!
Anyways, here are the approximate pink trendline upper bound prices by date:
> April 17 (today): $7723.38
> April 18 (starting at 8pm EST): $7743.53
> April 19: $7763.68
> April 20: $7783.83
> April 21: $7803.98
> April 22: $7824.13
> April 23: $7844.27
It would take one more notable dip down to test this upper bound, but at least now the %R is no longer oversold on both the 14-day and 21-day lengths.
Therefore, Bitcoin's next move is quite important.
PHOTO:
Note
2018-04-20, 11:20pm ESTHehe, looks like my opinion started an ICO and raised a little more than two cents. The whole "ignore the %R" came back into play once I called it off.
Bitcoin increased by almost 1K in just over three days since my last post, and the Williams %R is once again alerting an overbuy. And yet, the more I think about it, the more I'm not particularly a fan of how the stats is applied to this situation. Basically, if the current distance to the high is less than 1/5th of the high-low range, it is automatically considered overbought. That is far too simplistic to consider true outliers.
**Note that you want to swing outliers, because it's easy money to once the outlier eventually regresses. However, if a stat is falsely indicating an outlier, it could mean you waste your time on alert or money on a bad buy-sell.**
With that said, we're now in the mid-60s for the RSI, so we soon could be approaching a very legitimate overbuy territory...
PHOTO:
Note
With that said, I'm going to close this idea. I'm likely to follow with two more ideas, depending on the price action in the upcoming days.Here's what I'm thinking:
1) A strictly educational post about RSI vs Williams %R, and how the mathematical structure of each equation affects results. There a simple, yet very important reason why %R shows way more overbuys and oversells on the daily chart. We MUST talk about this to be the best possible traders.
2*) The possible regression of Bitcoin: Are we going for a nice low, or are we going for a small retrace that confirms we're approaching a bull market?
*- only if RSI surpasses 70
Until then, my best to you as we trade!
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