Understanding Bitcoin Daily Cycles and Using Cycles for Trading
Almost every trader focuses on price analysis. That makes sense, because price is obviously important. However, a majority of traders do not incorporate time as part of their analysis. Bitcoin trader Tone Vays is famous for using Tom Demark indicators (I also use and recommend following him). It's one way of measuring time and can help you time your trades much better.
Another easy way to add time analysis is through daily cycle theory.
Daily Cycle Theory
Markets are a measure of human emotions. And emotions move in waves. This causes assets to run in cycles where lows or tops ten to occur in specific time ranges. This occurs in all markets though some markets tend to follow the pattern more consistently then others. Bitcoin happens to be very consistent.
By counting the number of days in each cycle you can get a better idea of when a market is ready to pivot.
How do Cycles Work?
Waves are all around is. It's just part of nature. Sound, radio waves, light, earthquakes. Everywhere. And waves in a chart simply measure human sentiment.
Just 30 days ago, all I heard was talk of bitcoin being done for good. That we would see $4000 soon. Sentiment was maximized bearish. That resulted in way too many shorts who got squeezed all the way up to $10k.
Now we are starting to see another extreme. Everyone is bullish. The new bull market is "confirmed." The downtrend line is broke. They say this will be the last time we see $10k.
This is a perfect example of how sentiment can move in waves from bearish to bullish, from fear to greed. This change is reflected in price on the chart.
Cycles are also impacted by traders taking profits and markets running out of buyers or sellers. At some point a market goes high enough that people just can't help but to take profit. They get nervous and don't want to lose the profit they've made. So if the market starts to exhaust, traders start to sell, then as price goes down, more traders sell as they are concerned about locking in gains. Stops get run and we have a correction.
And inevitably the more expensive price gets, the less buyers you have. There might be some people thinking hard about buying bitcoin today, but put their orders in at $7000, $8000 or some number much lower.
Bitcoin's Daily Cycle
Every asset seems to have its own wave pattern where the market will move in one direction for a period of time before making a correction. I traded oil in the mid 2000's and its daily cycle ran closer to a 60 day cycle. I traded gold from 2007 to 2012 and gold's cycle was closer to 25 days.
Bitcoin has a 30 day cycle. But you must realize cycle are never exact. They will fall in a range. So a 30 day cycle is 25-35 day range. There are sometimes short cycles or long cycles, but will be about 1 in every 10 cycles. Like any analysis it is NEVER 100% right. This chart shows bitcoin's cycles. There are 15 of them in this chart. All of them in the range of 27 to 33 days. That's incredibly consistent and useful.
The red numbers are cycle lows. The green numbers are cycle inversions. If you get past day 22-24 without the market rolling over, then there is a good chance its going towards 30 and will top out as an inversion rather than making a cycle low. Inversions tend to be much more common in a bear market as price action is just generally more volatile in a bear market.
How do you use Daily Cycle Theory in Trading?
You can't just buy or sell based on cycles. Cycles are like an alarm or warning. They let you know that its a good time to take profit or start looking for a reversal at a top or look for a dip to buy.
Use cycles in combinations with other technical analysis. Start looking for pivosts or reversal candles when you are in that daily cycle range.
All I can say is that I added cycles to my trading toolset 15 years ago and its helped me take in more profit from trading.
Another easy way to add time analysis is through daily cycle theory.
Daily Cycle Theory
Markets are a measure of human emotions. And emotions move in waves. This causes assets to run in cycles where lows or tops ten to occur in specific time ranges. This occurs in all markets though some markets tend to follow the pattern more consistently then others. Bitcoin happens to be very consistent.
By counting the number of days in each cycle you can get a better idea of when a market is ready to pivot.
How do Cycles Work?
Waves are all around is. It's just part of nature. Sound, radio waves, light, earthquakes. Everywhere. And waves in a chart simply measure human sentiment.
Just 30 days ago, all I heard was talk of bitcoin being done for good. That we would see $4000 soon. Sentiment was maximized bearish. That resulted in way too many shorts who got squeezed all the way up to $10k.
Now we are starting to see another extreme. Everyone is bullish. The new bull market is "confirmed." The downtrend line is broke. They say this will be the last time we see $10k.
This is a perfect example of how sentiment can move in waves from bearish to bullish, from fear to greed. This change is reflected in price on the chart.
Cycles are also impacted by traders taking profits and markets running out of buyers or sellers. At some point a market goes high enough that people just can't help but to take profit. They get nervous and don't want to lose the profit they've made. So if the market starts to exhaust, traders start to sell, then as price goes down, more traders sell as they are concerned about locking in gains. Stops get run and we have a correction.
And inevitably the more expensive price gets, the less buyers you have. There might be some people thinking hard about buying bitcoin today, but put their orders in at $7000, $8000 or some number much lower.
Bitcoin's Daily Cycle
Every asset seems to have its own wave pattern where the market will move in one direction for a period of time before making a correction. I traded oil in the mid 2000's and its daily cycle ran closer to a 60 day cycle. I traded gold from 2007 to 2012 and gold's cycle was closer to 25 days.
Bitcoin has a 30 day cycle. But you must realize cycle are never exact. They will fall in a range. So a 30 day cycle is 25-35 day range. There are sometimes short cycles or long cycles, but will be about 1 in every 10 cycles. Like any analysis it is NEVER 100% right. This chart shows bitcoin's cycles. There are 15 of them in this chart. All of them in the range of 27 to 33 days. That's incredibly consistent and useful.
The red numbers are cycle lows. The green numbers are cycle inversions. If you get past day 22-24 without the market rolling over, then there is a good chance its going towards 30 and will top out as an inversion rather than making a cycle low. Inversions tend to be much more common in a bear market as price action is just generally more volatile in a bear market.
How do you use Daily Cycle Theory in Trading?
You can't just buy or sell based on cycles. Cycles are like an alarm or warning. They let you know that its a good time to take profit or start looking for a reversal at a top or look for a dip to buy.
Use cycles in combinations with other technical analysis. Start looking for pivosts or reversal candles when you are in that daily cycle range.
All I can say is that I added cycles to my trading toolset 15 years ago and its helped me take in more profit from trading.
Comment:
We are now on day 18 of the 30 cycle with roughly 12 days left. At this point just based on momentum its likely that we go lower.
Everything is oversold so I expect some kind of bounce first.
Can we fully reverse here? Sure. Its just that the probability is much lower. The most likely bullish scenario is moving sideways like the orange lines or something similar to the bottom near $6500 where we chopped around for a few more days and have a short cycle around 22-26 days which would be 4-8 more days from today.
I believe there has been a bit too much psychological damage as FOMO buyers that ran back into the market at $9k+ and loaded up on alt coins have been badly hurt. So I think price has to go lower to found value buyers.
Let me stress that anything can happen in a market. A great piece of news that really improves sentiment can cause the cycle to end early and we take off from here with an early 18 day cycle low. This is rare, but its possible. That's why you can't just trade off of cycles alone. They are a tool like any other indicator to help us look for optimal setups.
We are now on day 18 of the 30 cycle with roughly 12 days left. At this point just based on momentum its likely that we go lower.
Everything is oversold so I expect some kind of bounce first.
Can we fully reverse here? Sure. Its just that the probability is much lower. The most likely bullish scenario is moving sideways like the orange lines or something similar to the bottom near $6500 where we chopped around for a few more days and have a short cycle around 22-26 days which would be 4-8 more days from today.
I believe there has been a bit too much psychological damage as FOMO buyers that ran back into the market at $9k+ and loaded up on alt coins have been badly hurt. So I think price has to go lower to found value buyers.
Let me stress that anything can happen in a market. A great piece of news that really improves sentiment can cause the cycle to end early and we take off from here with an early 18 day cycle low. This is rare, but its possible. That's why you can't just trade off of cycles alone. They are a tool like any other indicator to help us look for optimal setups.
Comment:
Today, 5-26, we are on day 22 of the 30 day cycle. So now its time to start using cycle strategy to formulate a trading plan.
The trend is clearly down, but when a cycle bottoms, it will almost always have some kind of decent rally unless there is some major news. Thats why cycle theory (or any TA for that matter), is never going to work 100% accurate, 100% of the time. Thats why we use stops.
But we can use this to create our plan and set some expectations:
1. I expect a cycle low soon and believe 70% probability it comes in 5-10 days, so I'll be looking for a bottom soon. I'll have more conviction if it comes on June 1st to June 5th. Is it possible that Thursday was the low on Day 19? Sure, but it would be a very early cycle and that possibility is around 5%. The shortest cycle we've had in the last year is 27 days.
2. Since this trend has been aggressively down, I believe the chances are fairly high we get a really nice rally. At least 10 days. Could it start a new trend that breaks above $10k? Possible but cycle theory can't give me that kind of information. I will be able to tell as the cycle advances.
3. We do have to understand the current trend is down so nothing in cycle theory says this has to be THE bottom. We are just trying to pick a short term bottom. And looking at longer term cycles and history of parabolas its more likely we go lower or generally go sideways.
4. I see 3 scenarios that are most likely:
Scenario A: We are forming a small triangle, bull flag, go sideways until Monday or Tuesday then break down to form a new low on Thursday or Friday. This would suggest a slightly early cycle low but since we are severely oversold, an early cycle low wouldn't be out of the question. Last cycle was 32 days so its not uncommon to have a long cycle then a short cyle (27-28 days).
Scenario B: We rally from here on an oversold bounce and get the $7700 -$8200 range then pullback and form a double bottom next week. Even better just slightly lower low. I don't think this is that likely but I would not buy into a big rally. If day 19 was the cycle low and we rally, I would still expect a deep retrace of whatever rally we get. If its close to day 30, then I look to go long.
Scenario C: We stall here and start another big leg down. Possibly get a little bounce then a slightly lower low to end the cycle closer to June 5th. Maybe hit $5000- $6200 range.
Believe it or not, I would love to see Scenario 3. Not because I hate bitcoin or I'm some kind of perma bear. But because we'd have incredible confidence that a short term low is in, especially if we got a big wick high volume daily candle. And a big flush lower would very likely wipe out a lot of sentiment and clear the way to actually find the bear market low and start a new bull market. In the least, I'd expect a big rally to $8000 before going back down, so its good opportunity to get long while being extremely oversold. These are conditions that traders dream of.
The longer we just go sideways, the longer we'll stay in this bear market. And sideways means small rallies, small d mps and no volatility which is boring for a trader. Unfortunately, this is what I expect is more likely.
Remember that cycles are just ONE tool. We can't just blindly buy. So look at patterns, candle formations, price action, supply / demand zones, TD sequential and whatever indicators you like. This helps us confirm price flips and lets us take trades with more confidence.
Today, 5-26, we are on day 22 of the 30 day cycle. So now its time to start using cycle strategy to formulate a trading plan.
The trend is clearly down, but when a cycle bottoms, it will almost always have some kind of decent rally unless there is some major news. Thats why cycle theory (or any TA for that matter), is never going to work 100% accurate, 100% of the time. Thats why we use stops.
But we can use this to create our plan and set some expectations:
1. I expect a cycle low soon and believe 70% probability it comes in 5-10 days, so I'll be looking for a bottom soon. I'll have more conviction if it comes on June 1st to June 5th. Is it possible that Thursday was the low on Day 19? Sure, but it would be a very early cycle and that possibility is around 5%. The shortest cycle we've had in the last year is 27 days.
2. Since this trend has been aggressively down, I believe the chances are fairly high we get a really nice rally. At least 10 days. Could it start a new trend that breaks above $10k? Possible but cycle theory can't give me that kind of information. I will be able to tell as the cycle advances.
3. We do have to understand the current trend is down so nothing in cycle theory says this has to be THE bottom. We are just trying to pick a short term bottom. And looking at longer term cycles and history of parabolas its more likely we go lower or generally go sideways.
4. I see 3 scenarios that are most likely:
Scenario A: We are forming a small triangle, bull flag, go sideways until Monday or Tuesday then break down to form a new low on Thursday or Friday. This would suggest a slightly early cycle low but since we are severely oversold, an early cycle low wouldn't be out of the question. Last cycle was 32 days so its not uncommon to have a long cycle then a short cyle (27-28 days).
Scenario B: We rally from here on an oversold bounce and get the $7700 -$8200 range then pullback and form a double bottom next week. Even better just slightly lower low. I don't think this is that likely but I would not buy into a big rally. If day 19 was the cycle low and we rally, I would still expect a deep retrace of whatever rally we get. If its close to day 30, then I look to go long.
Scenario C: We stall here and start another big leg down. Possibly get a little bounce then a slightly lower low to end the cycle closer to June 5th. Maybe hit $5000- $6200 range.
Believe it or not, I would love to see Scenario 3. Not because I hate bitcoin or I'm some kind of perma bear. But because we'd have incredible confidence that a short term low is in, especially if we got a big wick high volume daily candle. And a big flush lower would very likely wipe out a lot of sentiment and clear the way to actually find the bear market low and start a new bull market. In the least, I'd expect a big rally to $8000 before going back down, so its good opportunity to get long while being extremely oversold. These are conditions that traders dream of.
The longer we just go sideways, the longer we'll stay in this bear market. And sideways means small rallies, small d mps and no volatility which is boring for a trader. Unfortunately, this is what I expect is more likely.
Remember that cycles are just ONE tool. We can't just blindly buy. So look at patterns, candle formations, price action, supply / demand zones, TD sequential and whatever indicators you like. This helps us confirm price flips and lets us take trades with more confidence.
Comment:
Bitcoin had a low on day 23 and I just feel its too early. This rally isn't convincing either. So at this point, I expect us to make a lower low in the next 5 days.
Today is day 27, so the low could happen any day. Weekends have been green the last few months, but last week the weekend was red so maybe things are changing with the weekend pattern.
I originally talked about a June 5th target, but now everyone is talking about the 6th being a low because we've had pivots on the 6th a few times now. When everyone talks about it, its not likely to happen. So I don't like that scenario that much. Seems like a good way to trap shorts.
So I'll make a guess that we bottom on June 1st-3rd then have a green day and a fakeout that looks like another bottom going into the 6th that will break the trendline and start a strong rally that lasts for 10+ days and maybe take us back to $8300-$8500 area before rolling over and then making lower lows late June or early July. If we break $8800 I'll start thinking about a bullish cycle.
Could I be wrong? Absolutely.
The low could be in on an early day 23, but if we march higher from here, I simply won't be aggressively long and will just look for scalps. And then eventually look to short resistance while we are still in a bear market. As I said, get over $8800 and I'll look for bull scenarios.
If the cycle low comes the way I expect then I can play it long with a lot more confidence. I'll update next few days after we see what happens. We still might go hit $7600-$7700 first and who knows, maybe get that June 6th low everyone is looking for.
Bitcoin had a low on day 23 and I just feel its too early. This rally isn't convincing either. So at this point, I expect us to make a lower low in the next 5 days.
Today is day 27, so the low could happen any day. Weekends have been green the last few months, but last week the weekend was red so maybe things are changing with the weekend pattern.
I originally talked about a June 5th target, but now everyone is talking about the 6th being a low because we've had pivots on the 6th a few times now. When everyone talks about it, its not likely to happen. So I don't like that scenario that much. Seems like a good way to trap shorts.
So I'll make a guess that we bottom on June 1st-3rd then have a green day and a fakeout that looks like another bottom going into the 6th that will break the trendline and start a strong rally that lasts for 10+ days and maybe take us back to $8300-$8500 area before rolling over and then making lower lows late June or early July. If we break $8800 I'll start thinking about a bullish cycle.
Could I be wrong? Absolutely.
The low could be in on an early day 23, but if we march higher from here, I simply won't be aggressively long and will just look for scalps. And then eventually look to short resistance while we are still in a bear market. As I said, get over $8800 and I'll look for bull scenarios.
If the cycle low comes the way I expect then I can play it long with a lot more confidence. I'll update next few days after we see what happens. We still might go hit $7600-$7700 first and who knows, maybe get that June 6th low everyone is looking for.
Comment:
Here is an overall review.
Despite my last analysis where I was looking for a low on day 30, we did not get a low. And by the time we got a new low, it was well past the cycle time. So for that reason, we confirmed that day 23 was indeed an early cycle.
What we can learn from this.
1. As I stated cycles are not perfect and we will have short and long cycles.
2. In this particular case, I did not buy the bottom of day 23. Also using TA, there was no technical reason to buy the day 23 bottom, so I just watched.
3. After we slowly grinded up for 10 days and showed major bearish signs, I realized the likelihood of another down move was a high probability and shorted around $7700 (can verify that in my other posts).
So despite a short cycle, Price action and TA kept me profitable. And now we are on day 26 of this downward move. So I'm expecting an ordinary cycle.
I believe we will find a low that will serve as a pivot point before a better bull rally than what we have. I do not believe this will be THE final low this summer, but it could be so we'll have to watch for it.
I'm looking for reversal in the next 2-5 days. Most likely early next week. I see now signs that we are reversing here at $5900. Currently looks like a bear flag and since yesterday was such an aggressive down day its more likely price needs to get to $4500-$5600 before we find a bottom.
Using cycles and TA we'll see if we can find a bottom and hopefully play at least a $1500 bounce up.
Here is an overall review.
Despite my last analysis where I was looking for a low on day 30, we did not get a low. And by the time we got a new low, it was well past the cycle time. So for that reason, we confirmed that day 23 was indeed an early cycle.
What we can learn from this.
1. As I stated cycles are not perfect and we will have short and long cycles.
2. In this particular case, I did not buy the bottom of day 23. Also using TA, there was no technical reason to buy the day 23 bottom, so I just watched.
3. After we slowly grinded up for 10 days and showed major bearish signs, I realized the likelihood of another down move was a high probability and shorted around $7700 (can verify that in my other posts).
So despite a short cycle, Price action and TA kept me profitable. And now we are on day 26 of this downward move. So I'm expecting an ordinary cycle.
I believe we will find a low that will serve as a pivot point before a better bull rally than what we have. I do not believe this will be THE final low this summer, but it could be so we'll have to watch for it.
I'm looking for reversal in the next 2-5 days. Most likely early next week. I see now signs that we are reversing here at $5900. Currently looks like a bear flag and since yesterday was such an aggressive down day its more likely price needs to get to $4500-$5600 before we find a bottom.
Using cycles and TA we'll see if we can find a bottom and hopefully play at least a $1500 bounce up.
It turned out that the exact day I posted this was the top in bitcoin for this cycle. And now we've had a major break down.
This chart is not a prediction. it's just an example of a potential outcome that you better be prepared for. It probably will take a different path, but this is an example of the kind of path it might take if we are set to make a cycle low in 20-25 days from today. THIS IS THE RISK!
It's possible this could be in an extend 35 day cycle low that goes to new highs, but I would say probability is only about 30%. Based on structure and price action, I believe we'll end up with a low of this move down in 2-3 days, then get a larger bounce.
Right now we are severely oversold on the 4 hour. With bitcoin weekends are usually bullish. So a small bounce sometime in the next 48 hours, then find a low Monday or Tuesday is a good bet. Again, this is just probability not certainty.