Explanation of how Bitcoin Was able to Make Such a Big Rally

Many friends of mine, we can call them newbies :) asked me how it was possible to see such a big rally this week. Obviously they all think that there are a lot of buyers in the market again, a lot of bulls. These are financial markets, with Bitcoin' being a highly speculative market, it's even worse. The fact that we saw such a big rally is because there were bulls on one hand, but this rally was actually caused by the bears. They had a big level at 4200, which they defended successfully the past 4 months. But this time they simply lost. So what happens with the positions of these bears? They need to close them, cut their losses. What does that mean? It means they need to buy them all back at higher prices. During a short squeeze and an obvious neckline like 4200, people panic close their positions with market (taker) orders or simply through stop loss orders.
Now when knowing this, also imagine that, all the bears in the market were already shorting the sh.t out of it below the 4200. So the only selling orders we had above the 4200 were probably just some bulls who had take profit orders ready. So where we normally always have 2 against 2 there is imbalance during a short/long squeeze, which means:

-) Buy orders = Bull going long (A) and bears closing short positions (B)
-) Sell orders = Bears going short (C) and bulls closing long positions (D).

Short/long squeeze (red): A is high and B extremely high while C is close to zero and D is small.
Normal rally/drop (green): ABCD is much more in balance, but obviously A is stronger than C with uptrend and with bear trend other way around.
Bull and bear flag: Bull flag (blue): A is higher than C and B/D are in balance (but both less than A/C). Which means, bulls are pushing until the bears loose strength (so volume drops). Then we see a rally with stops getting triggered. Bear flag is the same but the other way around.

For the double bottom i have shown an example as well. The first part is clear, bears are winning. Usually the first move up (purple) is simply bears taking profit. So that can be a good sign sometimes that a low might be close. The second time at the low, it's usually bulls starting to go long. This is where retail money starts to short and smart money goes long (yellow). Then smart money pushes it higher and through the neckline (green) and then stops get triggered and a squeeze/rally happens. Usually at the neckline we see a fight going on, where smart money keeps pushing, re accumulating at that high. Now imagine, you have bought around the low, which makes it easy to increase at that neckline because you are only risking profits. But if you have shorted at the lows, it's not easy to keep shorting at that neckline. Smart money knows this and that's why they usually choose the good spots to do their thing instead of hoping/guessing what the next move might be. For the ones who really read and write it down, know that i mentioned a few weeks ago, that after a successful first bull/bear flag, the second one because less reliable and so forth. This is because at the first one smart money is increasing their position.

This is also why we usually see 5 waves during an impulse wave. Smart money gets in at the low, increases during wave 2 and starts to close at the end of wave 3 and gets out completely at wave 5. Wave 4 and 5 is where retail money buys the high.

Of course there is more to all of this, but it's just to give an impression and visualization of how things work.




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