How can you use history to manage your risk?
PRICE ACTION
Tonight, we need to discuss BTCUSD from a different lens. Technical analysis largely relies of historical events to generate data points for testing of future patterns...
At a quick glance, this chart should seem familiar. The well known run up to December; followed by 12 months of price retracement – with a loss of over 80% for the new year offered a recovery relief. The white bar pattern is then a representation of the incredible (and ridiculously unlikely) rally that a 2016 style run would create – which would result in 1500% growth on the ATH price. INSANE!. NO WAY...
Of course, anything more than a cursory glance at this chart will pretty clearly show that this is just a reply of the 2014 bear cycle – and that 1500% growth on ATH was actualized. But this chart really – honestly – can tell us so much about what we are seeing right now.
From the price action, to the RSI, to the Volume – 2014 to 2016 can teach us a huge amount about how this space operates; and what is on offer to those who can look long term.
“BUT THE ENVIRONMENT IS DIFFERENT NOW...”
This has been the war cry of conservative thinking since 2011; when the first “bear crash” happened – and has been the case ever since. But that argument goes against one of the purely fundamental ideals of technical analysis. Every action – present, historic, or future – is factored into the price. Each entrant in the market weighs up all their factors to decide what price is acceptable to them – some rely more on history; some more of the speculative future value.
But the market finds its equilibrium from all those individuals; all making individual choices. The free market really is a beautiful thing.
But how do we compare this information in a useful way?
Tonight, we need to discuss BTCUSD from a different lens. Technical analysis largely relies of historical events to generate data points for testing of future patterns...
At a quick glance, this chart should seem familiar. The well known run up to December; followed by 12 months of price retracement – with a loss of over 80% for the new year offered a recovery relief. The white bar pattern is then a representation of the incredible (and ridiculously unlikely) rally that a 2016 style run would create – which would result in 1500% growth on the ATH price. INSANE!. NO WAY...
Of course, anything more than a cursory glance at this chart will pretty clearly show that this is just a reply of the 2014 bear cycle – and that 1500% growth on ATH was actualized. But this chart really – honestly – can tell us so much about what we are seeing right now.
From the price action, to the RSI, to the Volume – 2014 to 2016 can teach us a huge amount about how this space operates; and what is on offer to those who can look long term.
“BUT THE ENVIRONMENT IS DIFFERENT NOW...”
This has been the war cry of conservative thinking since 2011; when the first “bear crash” happened – and has been the case ever since. But that argument goes against one of the purely fundamental ideals of technical analysis. Every action – present, historic, or future – is factored into the price. Each entrant in the market weighs up all their factors to decide what price is acceptable to them – some rely more on history; some more of the speculative future value.
But the market finds its equilibrium from all those individuals; all making individual choices. The free market really is a beautiful thing.
But how do we compare this information in a useful way?
Nota
2017 - 2019
In this chart, we take the same premise and remap it onto the chart. The supportive trend line that was the catalyst for a large bull run; followed by an 80% retracement of value.
Again, we map out a hypothetical arc that could be the basis of the next accumulation phase; and finally, we map it out to its full extension.
RSI
In the top chart, the RSI creates a double top before lowering down – compared to a single top in the 2017 movement. However, on the retracement; both versions create 2 distinctive lower highs; before bouncing at a low point (12 and 11 months from peak, respectively).
VOLUME
In both instances; we see that volume significantly moves against its trend at the low point; indicating fresh capital moving into the market during accumulation. Additionally, both have a comparable volume bump at the initial attempt to break resistance (in the current cycle; that being $6000). One caveat that needs to be put onto volume profile mapping is that over the years; exchanges have changed – so the “popular” exchange du jour comes and goes. That means we are left with secondary exchanges that have stood to test of time as our reference data.
So now, we can say with relative certainty that the pattern is at least reasonably repeating itself onto the current chart. If you are interested in further researching this yourself; the 26W and 52W moving averages also have a high level of repetition between both cycles as well.
Nota
RISK MANAGEMENTSo finally, that leaves us with the underlying question:
“SO HOW DO YOU TRADE THIS?”
Well, broadly you need to understand your risks. Right now; the 52W moving average is less than $200 above the spot price; and just further above that is a high likelihood resistance in the $6000-$6200 range. That gives us, optimistically, a $500-$700 upside potential before a retracement/retest for support.
However, if the 2015 pattern continues to rhyme in the current pattern; there is a reasonable suggestion that price has one further retest before finally breaking through the 52W MA and exiting the accumulation phase.
The 2015 pattern suggests that the downside risk potential could be as great as 30% from current pricing; which may bring the price back down into the high 3xxx range. Scalpers and day traders obviously will continue to have a lot of opportunities as volatility begins to increase – but the average trader should be looking for high confidence trades.
With a potential $1.5-2k risk on the downside; and only a marginal upside reward – it is our opinion that bulls should practice highly conservative portfolio management for now. It is easier to get back into a position; instead of chasing losses.
Nota
OPEN INTERESTS (BITFINEX)Long: 1.67 Days
Short: 1.98 Days
RELATIVE STRENGTHS
- Micro (5m): Flat
- Short Term (4h): Flat
- Mid Term (1D): Bearish Divergence
- Macro (1W): Hidden Bearish
ON BALANCE VOLUME
- Mid Term (1D): Higher
- Macro (1W): Flat
KEY PRICE AREAS
Resistance: 5677 (52W MA), 6200, 6500
Support: 5350, 5071 (28D MA), 4880
PREVIOUS ANALYSIS
Nota
Penafian
Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.
Penafian
Maklumat dan penerbitan adalah tidak dimaksudkan untuk menjadi, dan tidak membentuk, nasihat untuk kewangan, pelaburan, perdagangan dan jenis-jenis lain atau cadangan yang dibekalkan atau disahkan oleh TradingView. Baca dengan lebih lanjut di Terma Penggunaan.