Bitcoin - Measuring the Breakout to the Upside

BTC/USD
Bitcoin, as I posted last night, appears to be accumulating more than it seems to be re-distributing. When a market is in a period of consolidation, it is either accumulating, meaning there is more buying than selling occuring, or distributing meaning there is more selling than buying occuring. Which type of consolidation we are in lets us know which way price is likely to go when price breaks out of it's trading range, if it's accumulating it will likely break to the upside and is considered bullish, however if it's distributing than price is likely to breakdown and is considered bearish.

Now just a cursory glance at Bitcoin would make us think it looks more like distribution (in this case re-distrbution because we allready fell from a previous consolidation period where we broke bearish). If you look at volume it appears that there is slightly more selling volume than buying volume, and a look at our Directional Movement indicator (which measures in simple visual format what we are noodling out between accumulation vs. distribution) gives us a distribution reading. We can see on the DMI that -DI (the red line) is above +DI (the green line) and the ADX (the black line) is underneath 25. The ADX being underneath 25 lets us know that price is consolidating, confirmed by just looking at price action. When -DI (red) is above +DI (green) it means there is more bearish momentum than buying momentum, and when we exit consolidation (ie: when price makes a move) we are likely to break bearish.

However, I'm going to be a contrarian here with my analysis. In a natural accumulation cycle, we see a selling climax, which is characterized by high selling volume, generally long tails wicking downwards off bearish candlesticks, and price immediately retracing to the upside as sellers become exhausted. We see this with Bitcoin's price action. We see an automatic rally up to 6289, and we see falling volume as we should see in a consolidation period. Now what characterizes this as accumulation for me, is the fact that we had a selling climax. An analysis of the candlesticks shows higher momentum from the bullish candlesticks than from the bearish candlesticks. Meaning, even though there is more selling taking place, when buying is taking place there's not enough sell pressure to resist price moving up on relatively high momentum. Also the fact that we're forming hourly higher lows with an equal resistance at the top between 6289 and 6285 forms somewhat of an ascending triangle, which is a bullish consolidation pattern.

A good rule of thumb for trading a breakout is to measure the trading range of the consolidation, and project that upwards or downwards depending on which way price breaks. Measuring the current range we get a value of $54. Measuring upwards from the point of the breakout we get $6343. My target I set based off Fibbonacci Retracement values was $6336, so I think these are decent targets to shoot for for the long biased trade.

Pricing yourself into a breakout can three main strategies. The first is that you can attempt to buy support, and that would put you trying to buy a $7 price range from the current price of 6259 and 6252 or lower. The middle white box in the picture represents the optimum buying spread for the long biased trade. Alternatively, you can simply set an alert at 6289 and aggressively buy the breakout, which is the common way of buying the breakout trade. Alternatively, you can wait for the breakout and attempt to buy a Fibbonacci Retracement of the pullback. If you're actively day-trading, you would generally avail yourself of BOTH of the last two options.