cryptocowboy2030
Short

Through the eyes of the Market Maker III

BITFINEX:BTCUSDSHORTS   BTCUSD Shorts
BTC showing some obvious and not-so-obvious signs of bullisness.

Bitgur displays open interest for CME and CBOE traders (citation at end of report). The smaller traders are long while the larger traders are short. This makes sense as the larger traders need more time to enter and exit positions in such a small market, so they are anticipating a later move down. The smaller traders are able to enter/exit positions much more easily, so they see a small move up as having some profit potential while the larger traders need a much larger move to make profit. Overall, this is a good sign that we have some short term bullishness while the overall market is still trending downward.


IG client sentiment (over at DailyFX) has some very interesting numbers for the retail trading market as per the quote below (citation at end of this report). They say as follows:

"Bitcoin: Retail trader data shows 61.9% of traders are net-long with the ratio of traders long to short at 1.63 to 1. The number of traders net-long is 77.9% lower than yesterday and 78.6% lower from last week, while the number of traders net-short is 49.2% lower than yesterday and 60.0% lower from last week."

IG client sentiment generally takes a contrarian point of view (as do I) in that they feel a fall in price will generally be likely while longs are greater than shorts. HOWEVER, the amount of longs vs shorts has more than HALVED. My studies generally look at the second derivative inflection points in rends, so this is arguably a very robust trend to what a contrarian would consider the be a path to overall pending bullishness.

AND TO THE CHART:

BTC is forming either a bullish pennant or even a potential bullish ascending wedge . I find that ascending wedges are far more dependable than pennants , but either formation does have a probability toward an upside breakout. To the right, we see a dramatic decrease in longs as well as a decrease in shorts. What does this decrease mean?

Let's review what a stop hunt is. When a trader goes long, they generally all place their stop losses in the same area below price. The market makers (MM) actually have visibility as to those stops. They have the resources and formulas to know that if they push price down into those stop losses, those "longs/buyers" will now become "market sellers". This means that the market makers can nudge the boulder to the edge of the cliff and the stop losses will gather enough momentum to cause that boulder to fall. Market makers know this and will get short and exit (exits are effectively a buy order) at a given target to which price dips. When the price is supercharged downward by all of those stop losses, the rest of the market will panic sell right into those MM buy orders, who will then move the price around to entice more retail traders to enter more positions and create more stops for them to trigger. Wash. Rinse. Repeat. Lambo. Moon. Yachts.

The same above process works for shorts as well. Since the stop loss for the shorts is above current price, the MM will nudge the price up high enough to trigger those stops. Those "sellers" will instantly become market "buyers" as their stops are hit and the price is supercharged upward. MM will go long first and exit higher (effectively a market short) and then they will move the price around and build more liquidity in the form of stops created by people entering more positions.

As per the chart, we are seeing a drop in both longs and shorts. This is a drop in liquidity. MM can't make money on this, so I am thinking they will have to make a move that injects money into the market OR they will have to be patient and let the market build liquidity on its own. I GUARANTEE whichever way this is done will be the most cost effective. Low volume does give MM the ability to push price around in an inexpensive way. MM like their money and I think they will make a move soon. Probably over the weekend when nobody is looking.

The fact that we have such a hard drop in longs means that the retail market is taking profit just below a well established short term resistance. This is smart trading. Bitfinex shows 56% longs vs 43% shorts. This is a notable disparity, but with such a relatively low amount of longs vs shorts, the market may be a little too soft to expect a hard move down based on stop hunting as there are few stops to hunt. So which move would be more cost effective for bringing money into the market?

I say "up" although it may not be immediate and could be preceded by a small move down. I am positioned for up and hedged for down at this point. Retail is bullish by the numbers and many think the bottom was in at 3000, so the hopium is strong. IF the MM choose UP, then we would see a push to 4200. If the bulls aren't that interested AND/OR the shorts start to build, the MM may spike the price up and gobble up those shorts. With so many eyes on 4200 as the range high, we could likely see a lot of money coming into the market.

My forecast (as per my disclaimer this is for educational purposes only and not intended as any sort of investment advice) is that we run to 4200. MM will see what happens with longs and shorts and will decide from there. If shorts build quikly, I expect to see a puncture of 4200 and the path to 5000. If longs build, I expect to see a retracement to around 3450 area.

***Any information represented here is my opinion only and not intended to be used for financial gain. None of the information posted here is to be considered financial advice. Information posted here is strictly for entertainment purposes only. Please consult your financial professional before making any kind of investment. Investments can be very risky and any investor should educate themselves before investing by enlisting the help of a licensed financial professional. Past results are not indicative of future results in any construable way.***
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BTCUSDSHORTS Falling wedge
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cryptocowboy2030 Crypto_Leverage
@Crypto_Leverage, I haven't tested using typical price charting methods with tracking of shorts and longs, so I am not sure whether or not any simple chart patterns would apply here. Have you backtested this method?
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Crypto_Leverage cryptocowboy2030
@cryptocowboy2030, well i never tested it personally but i have seen an IH&S pattern, in longs, playing out, as pridicted, before recent price surge and moreover its reacting to indicators like rsi. i thinks patterns shall play here too .
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But overall i like to read your analysis
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QUOTING: The fact that we have such a hard drop in longs means that the retail market is taking profit just below a well established short term resistance. This is smart trading. Bitfinex shows 56% longs vs 43% shorts. This is a notable disparity, but with such a relatively low amount of longs vs shorts, the market may be a little too soft to expect a hard move down based on stop hunting as there are few stops to hunt. So which move would be more cost effective for bringing money into the market?

COMMENT: At the end of 13 nov 2018 we had 19884 shorts and 24092 longs against 19966 and 25754 today. And we all know what happened on the 14th.
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@Bullbrain, You make a solid point. This is why I expect a move to 4200 and then not sure what will happen. The difference between now and 11/14 is that longs are trending hard DOWN while on 11/14, they were on a 45 degree (or more) trajectory UP. This is why I expect to see more movement before any possible drop. For the record, I think we see below 3000 before the bear is done. Maybe even below 2000. Lots of gaps to fill.
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Bullbrain cryptocowboy2030
@cryptocowboy2030, check this analysis.

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@Bullbrain, Yes, the shorts and gross certainly line up. I'm also seeing what you are saying about the longs and it makes sense. What I am trying to point out is a finer point about the longs and why I don't see a dip in price coming until the longs build. I've been calling a rise to 4K or 4200 and then a drop for weeks, now. What gets me thinking that this time could be different is the extremely sharp decline in longs over the past few days. I believe that there would have to be a substantial growth in longs before we see an actual dip in price. Your analysis shows that the longs dip, but the actual fall in price does not rise until the longs begin to grow again. So while we are seeing such a sharp decline in longs, I don't see that we will dip. And my theory says that a small jump to 4200 and even a small breach of 4200 would cause FOMO/panic buying which would give the MM the liquidity they need for a crush down to make sense. We are not in disagreement. I am just looking at the finer
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@Bullbrain, (completing the last post) I'm just looking at the finer point in that we need the longs to increase before the dip will happen. I see 1800 as a decent target for the floor this time around, for the record.
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Bullbrain cryptocowboy2030
@cryptocowboy2030, agreed we have the same bigger picture vision. But I am challenged by your claim of 4200 and 5000 for the short term and than a sharp decline backwards, ultimately going much lower than we are now. Personally i think we are in the same situation as 5 may 2018.
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