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BTC: Don't Catch a Falling CoinPrimary 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. BINANCE:BTCUSDT CME:BTC1! BITSTAMP:BTCUSD KRAKEN:BTCUSD
BITSTAMP:BTCUSDShort
by SquishTrade
22
Could BTC's Trendline End Not with a Bang But a Whimper?Primary Chart: Fibonacci Channel and Symmetrical Triangle Title alludes to a well-known excerpt from T.S. Elliot's poem called "The Hollow Men": This is the way the world ends This is the way the world ends This is the way the world ends Not with a bang but a whimper. Setting Aside Bias Temporarily to Allow Greater Flexibility in Analysis Many of my recent posts on cryptocurrencies have been presented with a bearish bias. A bearish view has been warranted, after all, because the technicals have left almost no room for a bullish short-term or intermediate-term view. Some of my recent posts have been neutral, however, to evaluate and explore more fully all possibilities within the context of support and resistance levels, price action and other technical factors. Unfortunately, BTC's price chart has not yet turned bullish given the price structure. And positive / bullish divergences mentioned by some long-term crypto investors cannot count until they are confirmed by a reversal in trend structure. This post attempts to set aside bias temporarily to present a variety of technical evidence as objectively as possible. The goal is to remain relatively neutral to allow a more complete examination of the price charts and technicals without the influence of a particular predetermined goal or conclusion. This might allow for greater flexibility to follow the unexpected turns that prices often take. BTC's Relative Strength in Recent Weeks In a recent bearish post, after listing several arguments for the bears, I discussed one argument for the bulls—BTC's relative strength. On October 2, 2022, my post stated: "One argument for the bulls is that BTC's sideways chop action has resulted in its relative strength becoming quite impressive. Equity indices have been plummeting sharply since mid-August 2022 with little reprieve. But BTC during this time has largely chopped sideways after losing a few key levels in late August and early September 2022." This relative strength can be examined more closely by looking at a spread chart that divides one instrument's price by the price of an index or some other price reference for comparison. The chart below shows a spread (or ratio) chart of BTC / SPX, showing BTC's relative strength compared to a leading equity index, the S&P 500 ( SP:SPX ). Supplementary Chart A: Spread Chart Showing BTC's Relative Strength vs. SPX www.tradingview.com Note how this spread chart has broken above a nearly 11-month downward trendline. Some may draw the conclusion too quickly that this suggests a trend reversal, such as from a downtrend to an uptrend. But a break above a down trendline by itself merely suggests a shift from that particular downtrend to either a less steep downtrend or a more neutral trend, which could then lead to a period of sideways chop for some time or it could lead to a trend reversal as well. But a reversal to an uptrend requires a change in trend structure, which is a process that takes time to form and has not occurred yet. Another aspect of BTC's relative strength exists. It has not broken its June 2022 lows as many equities and equity indices have done. Until that changes—it could break those lows at any time—this technical evidence is an alternative way of viewing BTC's relative strength. BTC's relative strength has improved even though BTC has largely churned and chopped sideways for the past weeks and months. This is because many asset classes have been steadily declining, some even plummeting, since mid-August 2022 peaks. Any asset or instrument will have relative strength when it moves sideways while equity indices continue to decline. The sideways consolidation will be discussed in greater detail in the next section. BTC's Recent Consolidation and Volatility Compression BTC's price has chopped steadily around a key Fibonacci level of $19,246 for the past several weeks since mid-September 2022, and even for a number of days in late August 2022 as well. This consolidation has been noteworthy given that equity indices have plummeted during this time. When an asset moves sideways while equity indices steadily decline results in relative strength (outperformance) of that asset as discussed in the previous section. Supplementary Chart B: Recent Consolidation Range Containing Price And during this lengthy consolidation, the compression in volatility has been quite significant. The next chart compares the levels of volatility by using a famous volatility indicator called the Bollinger Bands (set at 2 standard deviations from the mean) on a daily chart. Parallel channels have been drawn over various sections of the Bollinger Bands to give a visual comparison of the volatility levels and volatility compression levels over the past several months. Note how wide the Bollinger Bands expanded as a result of the high volatility associated with steep selloffs. And the periods of volatility compression (squeezes) often preceded those periods of high volatility and large directional moves downward. Supplementary Chart C: Bollinger Bands (2 Standard Devations) with Channels for Visual Aid in Comparing Volatility Levels Most importantly, note how the tightly compressed the current volatility in price has become, i.e., note how narrow, the Bollinger Bands are now. They are more narrow perhaps than at any other time during this bear market. If history is any guide, such a period of compressed volatility (a squeeze) implies that a sizeable increase in volatility associated with a large directional move will soon follow. Because the trend has been down, the odds would seem to favor a downward flush. But BTC's relative strength causes one to wonder whether a massive bear rally may be imminent. So traders should be prepared for any scenario where price could move dramatically. This is why my stance became more neutral for purposes of a thorough evaluation of price action. Because BTC is at a make-or break juncture in the short-to-intermediate term, it helps to stay open to all possibilities rather than staying rigidly fixated on the obvious bearish view. Being flexible and nimble can help traders remain more keenly aware and prepared for shifts that can occur at any time. VWAPs and Linear Regression Channel Even if the charts may be shifting in subtle ways, some of the technical evidence still firmly supports the existence of a downtrend. Shorter-term VWAPs \ show that the current price remains under the volume-weighted average price for a variety of different lookback periods. This means that the average buyer is losing money and the average seller remains in control for each of these VWAP periods. Supplementary Chart D: Various VWAPs from All-Time High, March 2022 High, June 2022 / YTD Low, and August 2022 High Further, longer-term VWAPs remain in favor of the bears as shown in a separate post from September 24, 2022 (linked as Supplementary Chart E below). The linear regression channel from the all-time high to the present, which was drawn a few days ago (also linked as Supplementary Chart E), suggests that the downtrend remains very much in effect, and that evidence should not be dismissed. Supplementary Chart E: Linear Regression Channel and Long-Term VWAPs Price at Apex of Various Consolidation Triangles The consolidation in price may be viewed from another helpful perspective—the various triangles that have formed. Triangles generally develop as a narrowing trading range (consolidation) as upper and lower trendlines converge under compressing volatility conditions. The Primary Chart shows a symmetrical triangle, which by definition does not imply a direction to the breakout. Price has reached the very apex of this triangle. Price has also reached the apex of two other right-angled triangles shown below. Right-angled triangles (also called descending or ascending triangles) do imply a directional bias via the sloping trendline that intersects with the horizontal trendline. In this case, the two alternative right-angled triangles (shown in Supplementary Chart F below) imply a downward directional breakout. But right-angled triangles, like other technical patterns and indicators, do not work perfectly to guarantee that the breakout will occur in the implied direction. Some right-angled triangle breakouts occur in a direction opposite from what is expected, which can make the breakout even more sharp because it catches market participants off guard. Supplementary Chart F: Multi-Month Right-Angled Triangle Supplementary Chart G: Second Right-Angled Triangle BTC's Price at Critical Juncture In conclusion, BTC's price now trades at a critical juncture. A breakout in price from the very apex of several different triangles could occur within a day or two. The compression in volatility has been quite substantial, implying a larger than normal directional breakout move. Combine this compression in volatility with the fact that BTC has not made a new low, has shown relative strength vs. blue-chip indices, and it would seem that traders should be prepared to react to whatever might happen. Price has also reached the 11-month downtrend line shown on the Primary Chart as the zero line of the Fibonacci Channel. Price could continue chopping sideways right through that down trendline without much ado. That would perhaps be one of the most frustrating outcomes for bulls and bears alike, which is why the title to this article was chosen. And at this point, it would appear that just about anything can happen—an eye-popping bear rally, a few major whipsaws up and down over the next several weeks, a major continuation move in the downtrend. Or price could just drift sideways through the 11-month downtrend line, ending it not with a bang, but a whimper. While predicting may feel satisfying, the better approach in this case may be to wait and allow price to tell us which way it wants to go. ________________________________________ Author's Comments: (1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view. (2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades. (3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success. (4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors. 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 / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
BITSTAMP:BTCUSD
by SquishTrade
9