Primary Chart: BTC's Logarithmic Trendline from the All-Time High to the Present Date
BTCUSD's current down trendline reflecting the primary trend can be drawn on either a logarithmic or linear chart. Both charts are used in technical analysis. Logarithmic charts tend to be better at conveying accurate proportions of price action on charts covering a lengthy period of time and a broad span of price action.
In the case of BTC, why does it matter? Look at the down trendline drawn on a linear chart (Supplementary Chart below) connecting the same all-time high in November 2021 and the March 28-April 5, 2022 peaks. Notice the breakout?
Supplementary Chart: BTC's Linear Trendline from the All-Time High to Present Date
Other evidence suggests that the downtrend is not over yet and new lows are likely. But the choppy and trap-filled price action since June 2022 has made it difficult for any directional traders long or short.
Care to vote in the comments? It's probably true that each vote reflects the conclusions each of us has reached, and our general market expectations. My vote is that the logarithmic chart is the better TL. But my posts have remained fairly bearish this year, so this may reflect my underlying expectation that no new uptrend is being established in crypto assets despite any sharp bear rallies in the near term.
Here are some of the technical reasons (in prior posts linked below) for remaining bearish. But for each of these reasons, there may be other keen technical or fundamental arguments being made for why the lows are very near.
Bearish arguments in prior posts:
Have a great trading week!
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.
Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Trade closed manually
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Looks like the logarithmic TL was the more appropriate TL given this week's price action. The linear TL from the all-time high had been broken in October 2022 in a way that suggested the trend might be shifting from a less severe downtrend to a neutral one. But this appears to have been a massive bull trap. Ouch!
The logarithmic TL, though, was never even close to being broken as discussed above! With huge price ranges as seen in bear markets or cryptos, which have wide price ranges, it's helpful to keep an eye on the log charts too.
BTC Price Action seems to have turned favour to TLs on smaller time frames. My vote is that both the Log/ Linear down TL from November has fallen out of play.
SquishTrade
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@MiserableToppings, Thanks for your vote! You could be right, let's see :)
Tolberti
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I agree with you on BTC, we will definitely find a resistance at the trendline.
Your technical analysis is awesome! Thank you for sharing!!!
SquishTrade
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@SwallowPremium, I appreciate your kind words. Thank you for reading and commenting :)
SpyMasterTrades
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I study Bitcoin almost daily and spend way too much of my time reading research articles on Bitcoin as well as conducting my own research on it. Here are some of my thoughts:
1. I only use log-adjusted charts on Bitcoin because its price grows in accordance with a logistic growth function. While one can use a non-adjusted chart for short-term trading, on higher timeframes one should log-adjust their chart of Bitcoin. An analogy to using linear charts on Bitcoin is: Trying to measure distances on earth using a straight line. While the earth may seem flat to an observer because their perspective is so narrow, when viewed in its totality the earth is actually spherical. The smaller your horizon, the more linear it seems. Thus, if one trades on a very short time horizon then linear trendlines may seem to work.
2. With that said, on the higher timeframes no linear trendline, whether log-adjusted or not, is fully valid. No linear trendline is mathematically capable of predicting Bitcoin's price action indefinitely. This has to do with Bitcoin's price moving in accordance with a logistic growth function. Although one can use the Euler Method to create successive linear trendlines to approximate Bitcoin's price action over time, in the long term no one linear trendline remains valid. This is different than stock indices which do tend to conform to log-linear trendlines because they are influenced by a money supply that perpetually increases at some greater exponential rate than the stock market. Bitcoin on the other hand is growing faster than the money supply and is thus becoming limited by it over time. (The maximum amount of money that could possibly flow into Bitcoin is the total money supply).
3. Bitcoin has very likely not bottomed yet. It likely has one final leg down to go. I encourage people to be patient. There will be ample time to buy Bitcoin at less than the current ~20k from now into 2023. Keep opportunity costs in mind.
4. Eventually it will become restrictive or outright unlawful to hold Bitcoin in the U.S. When Americans began to hold gold instead of dollars to preserve wealth during the Great Depression, the central bank compelled the federal government to make the populace surrender their gold (i.e. surrender their ability to preserve wealth). Bitcoin poses an even greater existential threat than gold to fiat currency by virtue of its unique perpetual scarcity. Bitcoin’s halving cycles will cause its stock to flow to exceed that of even gold. Very powerful entities will endeavor to stop Bitcoin. Be wary of CBDC as it may become a tool to prevent conversion of fiat currency into Bitcoin. Ultimately, it is most likely that Bitcoin will prevail and replace the role that gold currently plays as a scarce commodity that backs the monetary system.
SquishTrade
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@spy_master, Thanks for your comments on log vs. linear use, it adds to the discussion above in response to BahamasX's question. And your well-researched thoughts on BTC's potential role in the monetary system are also interesting and informative. Thanks! I wonder whether a central bank endorsed / created digital currency will render most cryptos useless in the future.
Lastly, I agree with you on another leg down for BTC. It makes the most sense. The measured-move target has been my focus ($12,184), but there could be lower targets as well such as the VWAP from the all-time low from available data at $2.22, which is around 6K now. Targets are obviously speculative, but what's your target?
SpyMasterTrades
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@SquishTrade, My best guess would be somewhere in this red-shaded box.
BahamasX
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Thank you so much for sharing this approach. Do you really think we can use a trendline on a logarithmic scale to trade or just to view and think because a straight line on a linear graph becomes a curved line on a logarithmic graph and vice versa ...