BTC at a crossroads -- Continuation or reversal confirmation?

BTCE:BTCUSD   Bitcoin / U.S. Dollar
443 9 12
It's been a long while since I've published much. The major reason for this is that I've been trading off of a single chart for the better part of 3 months now, and haven't had any reason to deviate from it. Price has come a long way from the summer rally.

We've experienced massive runs on stops, cascading margin calls, emotional bullish capitulation, new 2014 lows, and subsequent catharsis and bounce. I was able buy most of my current position below $300. It's important to keep my positions in mind when reading my analysis. I'm only on the move for managing risk I've already taken on.

The bounce to $400+ left me with an opportunity to enter short on a smaller timeframe with a portion of this position. The subsequent retracement price action left me in a great place -- with long and short positions both running and bounded by profitable stoplosses. I will examine this trade below and illustrate why I've scaled in "early" on this retracement and why it gives me a slightly bullish bias on the smaller time-frame that may be carried through to higher time-frames.

The outcome of this bullish bias is illustrated in the yellow arrows on the chart above. This is not a prediction so much as perspective on the possibilities. I remain firmly neutral on longer time frames. Again -- in the event of continuation of the downward trend represented by the master pitchfork above -- I will stick to my stops, take my small profits on buys from below $300, and hunt for an even better entry on lower lows.

However, in the event that the retracement bottoms out here, and we head from here to higher highs, a reversal will be confirmed enough for me to define a new pitchfork . I will also include what that pitchfork will looks like below, again, under the assumption that the $327.53 retracement bottom holds.

As a yardstick for our expectations, I've singled out a critical level on the OBV in teal. The corresponding horizontals on MFI and price signal a divergence that could play out as is, still build in strength or simply "fizzle out". In order to bring the shorter time-frame bias up to this daily frame, we'd expect to violate such a level that spans before and after the price bottom.
Well well, yesterday I began working on an update to this idea that basically cautioned against being overly bullish until the buyers really prove they mean business. In the original publishing on this page, we used the teal horizontal level as a key "yardstick for our expectations". Today, we broke that yardstick, and the rest of my downtrend pitchfork, with extreme force. At this point, we will simply hold all long positions without a target in mind, managing profitable stops several levels of support below where we last consolidated. The confirmation of reversal of a many-month downtrend has come in spectacular fashion, and there is no reason to try to pick a top so early on in the trend, even with small positions. It will be much more work than it is worth. Our bullish expectations have been launched from smaller time frames into the largest of time frames. Patience is key as our profits run. Once a trade is entered at any of these levels, its very easy to get shortsighted on small pullbacks. When the price moves quickly and singularly in a direction, fickle emotions can fill voids that follow. Play those emotions if you must, but don't lose sight of what got price there.

And just as I promised at the beginning of it all, here is the current fork I will be working with as the uptrend develops. I also extended the horizontals we identified in the original publishing so we can see the break happen, right near our new center momental.

I'll likely be publishing a new chart as this trend develops, and we might examine a newer strategy I've been hoping to employ with the Jurik DMA crosses.
+1 Reply
NightWish BuyOnPurple
I would love to see this ^^ chart published, great chart to hit the play button on every week or so ;)
+1 Reply
Update --

New lows were broken on BTC-e, however, we witnessed somewhat of a growing resurgence in the past 2 days. While we haven't broken any significant high and its still too early to confirm a reversal, it seems increasingly clear that bullish tension is building. Whether it is being snuffed out or intentionally held back to rubberband is not entirely clear with the way we've been approaching shorter TF resistances. I did, however, want to include this small update as my previous "potential reversal pitchfork" was invalidated by the new low. I will not include a new one until I'm more sure the low it's based on will hold. However, I wanted to include another pitchfork that illustrates the current trend on an alternate exchange. It's important to note that I lay all pitchforks on price extremes with the magnet tools to ensure accuracy. I wanted to illustrate how relative levels of the pitchfork can differ between exchanges while the larger picture remains effectively the same. Especially with the disparity between chinese and western bitcoin exchanges, I thought it'd be interesting practice.

There's also a little trick I'm enacting with the schiff fork. You can actually lay a schiff fork to produce two different midlines with exactly the same 3 input points. The trick is to lay the first point -- the origin point of the center trend, and then where you would normally choose the final low and the next high -- you instead lay the next high first and THEN the low. The offset angle that the schiff fork introduces over a normal pitchfork is then mirrored about the centerline. I'm not sure if schiff ever meant for it to be used this way, but the whole point of a schiff fork is to take a would be extreme price/time trend and make it more mild with the same inputs.

The final note on this chart is that the extreme bottom on 2014-06-28 was the technical prospect for the low anchor of the fork as it was the lowest local low, but it was a spike cause by a single sell so I opted for a slightly earlier point. The result is much cleaner and more about the center line, but using 06-28 wasn't a terrible result, either.

Keep an eye out for the confirmation move. If we don't move down again, all my long positions are set until the next major daily top is confirmed. If we do fall and breach support, then I've got the messy job of getting stopped out and deciding to aim for a double bottom play or stay out of the market until more substantial recovery.
-9 Reply
Avatarhash BuyOnPurple
I dont know why you got some much downvote while your analysis is very good one.. anyway, great analysis and looking forward to hear more from you
BuyOnPurple Avatarhash
I appreciate the support, I'm looking to start publishing more as the market moves. Ignore the downvotes, they're from robots :)
+1 Reply
Maddie Avatarhash
I think artchart has 10 different accounts ;p
Finally, here is what our new masterfork would look like if we were to have reached bottom with $327.53:

The center trendline puts us at ~$450 in January 2015, and even extrapolated out to 2016 it is still quite mild.

In the meantime keep an eye out for suppressed accumulation or another rollover. Any breach of lower lows could pin us under 2014 levels for a long time.

-10 Reply
Here is the shorter TF chart. Normally it would be a 4H, but I was experiencing some odd gaps in the 4H data so I just went with 2H instead. The short position tool is exactly accurate with my entries -- though not my stops. I entered at $400, moved my stop down to $383 as we bounced off the 38.2%, and was stopped out very close to the apex of this short wave. I was lucky enough to recognize that I moved my stop too aggressively to quickly and was able to again re-enter short as described by the chart. I've since closed small portions at the target prices, and I'm still holding out the rest with a tentative short-stop at $360 (though I will likely adjust that soon).

The major takeaway from this perspective is the ever impressive magnetism of fibonacci levels and especially the volume profile across a range which has been swung through in both directions. We see excess choppiness, again in both directions, with the market feeling quite "jumpy" and prone to short emotional bursts that eventually get snuffed out at the nearest major support or resistance. As a result, I scale in slowly -- with a bigger portion on each subsequent level -- until the market goes dead. Then as I've been squawking this entire time, use whatever the next move is -- in either direction, to bound your positions with profitable stoplosses. This will best insulate you from "fake-out" swings during the chop whilst allowing you to play whichever direction we end up going.

The only clues that we are nearing a bottom come in the form of bearish exhaustion volume candles. This is a weak signal in a retracement move, because it can just as easily signal dying buyer presence after a failed rally. This is why we hope to violate more obvious volume structure on the longer time frames to confirm our bias. But we proceed with the trades as planned regardless.
-9 Reply
"Again -- in the event of continuation of the downward trend represented by the master pitchfork above -- I will stick to my stops, take my small profits on buys from below $300, and hunt for an even better entry on lower lows. "

Same here. I was happy to buy at $280 but a second buying opportunity at $300 would be great.
+11 Reply
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