Bottoming process BTC
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For the first half of 2018 BTC has been in a major bear market, but this was expected and warranted given the massive rally 2017 had for BTC.
The thing about manias, crashes, and the market in general is that nothing is new. No matter how "different this time" it seems, it really isn't. This is because human psychology is the same, we continue to be extra bullish at the top and extra bearish at the bottoms. That leaves tell tale signs, footprints, of how the markets will trade in the future.
I've been trading since the late 1990's, I earned my bones in the dot com bubble of 1998-2001 (give or take). Believe me, then, like now, we thought it was different. Technology was new, the old school Wall Street people didn't understand it, they wagged their fingers at us saying that none of those companies had any profits, they were all venture backed IPO hype. And they were right, for the most part.
Technology stocks, much like cryptocurrencies, were the future. They would change the world, and are on a one way trip to the moon.
Then things got frothy, people started taking profits and the world changed.
For me I was very lucky to have been taken under the wings of an experienced trader who taught me how to trade. Long and Short.
The inevitable dot com crash was quite lucrative for me, as was the dot com bubble itself. The trick is to trade the market that is in front of you, not the one that is behind you, that is to say, just because BTC was 20k 6 months ago doesn't mean it has to be 20k any time soon. In fact the Nasdaq Composite hit 5,000 in March 2000 and didn't see the 5000 level again for 15 years.
There are a lot of similar characteristics from the Dot Com bubble, the Nikkei in 1989 and the 1929 DJI crash. As I mentioned these market manias and subsequent crashes left clues. Things to look for when evaluating a market that has crashed since its recent mania.
The following are some key factors that represent the bottoming process and the same factors I'm keeping track of on BTC.
The first thing I'm looking for is a double top at the parabolic breakout highs. This can either be a higher high after a very fast and agressive pullback or a lower high.
Massively agressive bounces with very high volume, V-spike lows.
Failures off these high volume lows that start to move more sideways and downward much slower than recent past.
Volume eventually starts to dry up, rallies get shorter and sideways action gets longer.
Eventually the perma-bulls start to disappear, they go back to their regular jobs, people lose a lot of money.
When all of these above factors (and they are mostly qualitative) have happened then I look for two very key technical indicators.
A new low spike, the previous low with the high volume which has held for a while actually gets taken out.
While the MACD and RSI both put in higher lows.
This is called a bullish divergence and coupled with new lows on low volume and a very pessimistic sentiment then by golly we have the makings of a bottom.
This is not the buy the dip signal as there is still a lot of pessimism to unwind.
However, once we have the new low and a bullish divergence on MACD and RSI (using the 3 day chart with BTC) I unwind my short positions and I start looking to accumulate long positions.
This happened the end of June as we broke below the 6k levels.
We still have the potential to hit 4970 and 3100 levels, there is no doubt that these are very good possibilities before we see a move to a bullish regime, however the risk of staying short here is too high.
For me I've covered my shorts unless tactical trades, and am looking to either sit in cash or wait for good buy opportunities.
I place limit orders down near the 4970 level and 3100 level.
That covers my down side entries, and even if they eventually don't hold and we continue lower, at least I know there will be some good bounces around there that I can trade around.
The thing about manias, crashes, and the market in general is that nothing is new. No matter how "different this time" it seems, it really isn't. This is because human psychology is the same, we continue to be extra bullish at the top and extra bearish at the bottoms. That leaves tell tale signs, footprints, of how the markets will trade in the future.
I've been trading since the late 1990's, I earned my bones in the dot com bubble of 1998-2001 (give or take). Believe me, then, like now, we thought it was different. Technology was new, the old school Wall Street people didn't understand it, they wagged their fingers at us saying that none of those companies had any profits, they were all venture backed IPO hype. And they were right, for the most part.
Technology stocks, much like cryptocurrencies, were the future. They would change the world, and are on a one way trip to the moon.
Then things got frothy, people started taking profits and the world changed.
For me I was very lucky to have been taken under the wings of an experienced trader who taught me how to trade. Long and Short.
The inevitable dot com crash was quite lucrative for me, as was the dot com bubble itself. The trick is to trade the market that is in front of you, not the one that is behind you, that is to say, just because BTC was 20k 6 months ago doesn't mean it has to be 20k any time soon. In fact the Nasdaq Composite hit 5,000 in March 2000 and didn't see the 5000 level again for 15 years.
There are a lot of similar characteristics from the Dot Com bubble, the Nikkei in 1989 and the 1929 DJI crash. As I mentioned these market manias and subsequent crashes left clues. Things to look for when evaluating a market that has crashed since its recent mania.
The following are some key factors that represent the bottoming process and the same factors I'm keeping track of on BTC.
The first thing I'm looking for is a double top at the parabolic breakout highs. This can either be a higher high after a very fast and agressive pullback or a lower high.
Massively agressive bounces with very high volume, V-spike lows.
Failures off these high volume lows that start to move more sideways and downward much slower than recent past.
Volume eventually starts to dry up, rallies get shorter and sideways action gets longer.
Eventually the perma-bulls start to disappear, they go back to their regular jobs, people lose a lot of money.
When all of these above factors (and they are mostly qualitative) have happened then I look for two very key technical indicators.
A new low spike, the previous low with the high volume which has held for a while actually gets taken out.
While the MACD and RSI both put in higher lows.
This is called a bullish divergence and coupled with new lows on low volume and a very pessimistic sentiment then by golly we have the makings of a bottom.
This is not the buy the dip signal as there is still a lot of pessimism to unwind.
However, once we have the new low and a bullish divergence on MACD and RSI (using the 3 day chart with BTC) I unwind my short positions and I start looking to accumulate long positions.
This happened the end of June as we broke below the 6k levels.
We still have the potential to hit 4970 and 3100 levels, there is no doubt that these are very good possibilities before we see a move to a bullish regime, however the risk of staying short here is too high.
For me I've covered my shorts unless tactical trades, and am looking to either sit in cash or wait for good buy opportunities.
I place limit orders down near the 4970 level and 3100 level.
That covers my down side entries, and even if they eventually don't hold and we continue lower, at least I know there will be some good bounces around there that I can trade around.
Nota
And here we go, first buy stop is above 6849Not only will I be pulled into this position by dropping to new lows, but as we move higher Buy Stops are in place.
BTC breaking above 6849 (Bitfinex) is a breakout of wedge pattern and a break higher to test the 8k levels.
Nota
Bottoming process continues. This pullback is all part of the process, until proven otherwise.
As a trader I'm trading this according to this plan here
I write a newsletter about edges in financial markets…and life. Traders responsible for 9+ figures in daily transactions read it and you should too. Former USMC. pollinatetrading.com
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