TexasWestCapital

Diamonds are a trader's best friend?

BITFINEX:BTCUSD   Bitcoin / U.S. Dollar
Good morning, traders. Bitcoin found itself trading sideways over night once more, narrowing the range as it did. CME Bitcoin futures expire tomorrow, so it is possible the market is waiting for this to happen before we see a spark to ignite bullish momentum. Of course, we could just as easily head downward, but this doesn't make as much sense considering price movement and equalizing/increasing volume .

We continue to watch price action evolve on the 4h chart. At this point, there is a diamond pattern nearing completion. The expectation is a strong push out of the pattern either up or down. Usually, a diamond pattern at the end of a trend is a reversal, but it is not guaranteed. Upon a strong breakout, we should expect price to initially target the diagonal resistance or support areas as noted by the extended lines. MACD is starting to pull away from the signal line slightly perhaps giving us a glimpse at upcoming price movement. RSI and %B continue to bounce off their support areas with the former looking more bullish than the latter.

On the 1h chart, we can see price finding current resistance at 61.8%. RSI continues to bounce off support and %B against resistance. MACD is printing a bullish cross. It also appears we may be seeing a diamond pattern forming in this time frame as well. The target, as with the larger pattern, is the point at which the action began (i.e. the drop point). Technically, it's the price range between the lowest and highest points within the diamond, but that action point is where it should take you and, as you can see in both time frames, it does. These are two other ways in which to find the target of the breakout. Traders shouldn't be concerned about price action pushing out of the boundaries of the potential diamond as this some times occurs. Diamond patterns are often much rarer to fine, however we may be seeing them at this point due to the low volatility combined with algo trading that is going on. While overall volume is equalizing/increasing, the local volume on these time frames has been dropping while price is moving within the patterns noted. I would feel more confident about the patterns if we were seeing increasing volume more recently and, to be honest, I'm hesitant with these due to the amount of white space within the pattern.

Continue paying attention to BTCUSD longs and shorts as well. Currently, shorts have been dropping and longs have been building. I hear the calls for a long squeeze, but this is much more rare than a short squeeze and tends to happen most often in illiquid markets ( Bitcoin is not illiquid). If the bigger picture I have been describing is accurate, then we should expect to see longs build and shorts drop as the market begins a new bull cycle. Shorts find themselves with a greater ratio to longs during bear cycles, though above 1:1 they tend to still get squeezed. Remember, shorts are necessarily contrarian to overall market movement as markets tend to trend upward.

My expectation remains that we will see price rise through July and into August. As always, we do not trade on opinions though -- mine, yours, or anyone else's. Opinions should only be used to derive a potential narrative with associated price action. This allows a trader to develop confirmation points at which he/she decides that one particular price movement is more likely than the other. But risk management remains key and traders should always assume their trade is going to be wrong. This forces them to be much more cognizant of their risk management. At the end of the day it is your risk management that makes you money, not your win rate since the only thing you control in the market is how much you lose.
Comment: Slight update to the 1h diamond based on the recent movement. Makes me feel a bit better about the pattern, but I'm still not sold at the moment.

Comments

Wonderful analysis! +1 +1 +1 +1 +1
+3 Reply
I'd mentioned in my video analysis from yesterday why the Wyckoff Method will not be valid. $3500-4500 is the probable bounce zone due to confluence or the meet of the 200 MA (weekly) over the next few months is also likely (~$2900-3700).
+2 Reply
This might be the case till the end of month:
Reply
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