Probability shifts in favour of the bulls - but for how long?
TLDR; Bitcoin is in the process of forming a higher low on the larger timeframes (Daily/Weekly) within the range that it has sat in since April 2021 (range boundaries are roughly 60-70k area and 30k area). This increases the probability that Bitcoin will make an attempt at the all-time high and potentially head on up to extended targets of 75k and 100k. These are my ultimate areas of interest for the completion of the major bull trend we are in, starting from the 3k low and confirmed with the breakout above 12k.
This post looks at the possible scenario that has a favourable probability of evolving should bitcoin retain value above the local low of 33k-40k and dives into what is going on behind the scenes that makes this important. I will run through the logical steps traders make to contextualise the market condition in order to establish A) the rough probability of future price action B) the risk involved with trading.
When professional traders look at a chart, they begin by zooming out entirely. They IGNORE the most recent candles (for the time being) and instead look at the overall picture the chart presents, attempting to contextualise what has been the overarching vibe behind price for this asset. Usually looking only at the daily or weekly chart (professional traders don't care about smaller timeframes unless day trading), the most simple way you can think of this is by asking "has price generally been going towards the top right of the screen, bottom right, or flat (otherwise known as bullish trending, bearish trending & ranging).
So let's start here (follow along with the numbers listed on the chart):
1: Here we see extremely strong bullish trending by Bitcoin, reaching a high of 65k. Not only did price massively increase but there was only one small pullback in January 2021 where price paused for a relatively small amount of time. The short-lived length of this pullback, combined with the strength of the bullish impulse gives us a glimpse into the psychology of market participants and the market as a whole during this time. Simplicity is our best friend as a trader and, while it might sound extremely obvious, this price action tells us A) lots of people were very interested in buying bitcoin at any price. Rather than waiting for the January pullback to retest the 20k support or retrace any significant amount, buyers simply weren't keen on waiting. B) Market participants thought Bitcoin was so valuable that they did not want to sell in any significant amount until Bitcoin had reached the 65k area, a whooping 1000/1500% increase since the 3k March 2020 low. While the influences of market participants are different at the time of writing, the psychological behaviours/habits/rationals of participants back then that led to these two things casts a shadow on the current price and where it might go. In a technical sense, this is described as "giving bullish sentiment to current price action", but in normal speak this means "the chance of people buying again as before is higher than everyone suddenly changing their mind and selling." Even inexperienced traders subconsciously know this - ask yourself if you still think bitcoin is going to 100k like you did back then? Most of you will subconsciously still have the same hope/greed/bias EVEN THOUGH we have spent a year bouncing around between 30k-60/70k. The only difference between you and a professional trader is that they are able to realise, act and control this subconscious drive. As such, the pausing of the trend while Bitcoin ranges between 65-30k has a bullish taint to it.
2: The bullish trend paused itself in a bang at 65k. If you think of bullish price action as nothing more than more market participants wanting to buy than sell, eventually when an asset appreciates a lot in value it will reach a point where the number of people willing to buy that increasingly expensive asset dries up. Those looking to sell for a profit increase, shifting the majority of peoples actions away from buying and instead towards selling, ultimately making the price go down. As the price goes down, the exact same metrics apply - if more people are still willing to sell the asset for cheaper and cheaper than those willing to buy it for a discount compared to what it used to be, then price will continue down. Price pauses and stops dropping when enough people think "ah that's cheap now!" and enough sellers think "ah dam it's too cheap to sell so I won't bother" OR "I've sold everything I own and now it's cheaper than before so I will buy".
This gives us some important information. IF Bitcoin had reached its high of 65k and then plummeted all the way back down to 20k or lower, this would tell us that A) there were a lot of people willing to sell for 30/40/50/60/70/80% what Bitcoins value had been B) there was no one willing to buy Bitcoin at a big discount. INSTEAD, buyers were found at 30k and this then sets our two range areas. From this, we can say: 65k is where participants thought it was too expensive to buy while sellers thought it was a good time to sell, and 30k was where participants found the discount attractive enough to step in and sellers had either sold all their inventory or it was too cheap in their minds to sell. With this, we can paint our range boundaries and say - if price goes beyond these two areas SOMETHING is changing compared to before.
3. This concept of "something" having changed is demonstrated when we broke the all-time high of 65k in Nov/Oct 2021. We don't need to know what changed (maybe institutions were buying / maybe technology in blockchain was getting lots more investment) all we need to note is that something made people think "I'm going to keep buying!" even when we hit that 60k resistances area were back in January 2021 those same participants thought price had become too expensive to buy and more people had been willing to sell. The importance of noting this is, combined with the "shadow" of the bullish trend of 2020, allows us to understand that there is an increased probability of Bitcoin eventually resuming its bullish trend and heading on up to our extended price targets of 75k-100k areas, or ATLEAST breaking the all-time high again RATHER than breaking the 30k resistance zone.
4. This same understanding of market psychology and comparing price action can also be used for the most recent low of 33k area and allows us to begin to understand what might be the most probable path for Bitcoin. I say "most probable" because you must ALWAYS remember trading is a game of probability and while things may seem certain because of XXX there is always the chance that a 1% black-swan event may come out of nowhere and mess everything up (Covid/ 2008 housing crash / Russia invading Ukraine).
It is looking like Bitcoin has made its low and is primed for more bullish action. In a simple sense, this tells us that unlike back in May-July 2021 buyers were much quicker at stepping in and sellers less enthusiastic at selling at these current prices. Not only this but the relatively short-lived time spent below 41k also gives huge weight to this argument. Similar to the break of the all-time high, this tells us that buyers across the board since the 65k high in April 2021 have been keen to snap up bitcoin at increasingly more expensive prices and less keen to sell for cheaper prices. Combine this with the bullish taint of the previous bullish trend from 2020 and we can fully understand the probabilities that we are currently sat in - a bullish range breakout is more probable than not.
For this to be even more true over the next few weeks/months, I would like to see a number of strong impulses with very little/flat retraces. This will tell us that sellers just aren't there and, if those retraces are small like that of January 2021, buyers are super keen to jump in whatever the price. The less of this kind of selling consolidation we see the more weight this gives to the bullish argument that is already strong considering the points made in this post.
5. Now we have established the rough probability of one path of action, we must consider that there is always the chance for that to not happen. As such, we need to know the risk involved in this market. The risk is basically "how much can I lose". I can't tell you how to do this step as only you know your entries, but what I can tell you is the conditions for the above scenario to fail, which would shift probability in favour of more downward selling and so the probability that "risk" to your positions will emerge. This can play out in two ways.
A) We fail to maintain price above 41k over the coming weeks, with no strong impulses up. Instead, a retest of the 33-40k area occurs where price hesitates and remains for a few weeks. If this were to happen it would tell us that people are just not buying as the less time we spend at support = the more buyers that are there and so the stronger that support is / higher prices will bounce off of it due to bullish momentum. It is relatively common for a retest of the lows to occur so some kind of minor higher low, potentially of 38k has a high chance of evolving but to give more favour to the wider bullish scenario of breaking the all-time high I'd prefer not to see this.
B) Bullish momentum from the lows carries us towards the middle of the range at 50k (remember the range is 60-70k range high and 30k range low), where we see sellers stepping in and pushing price down towards the lows again. This would tell us that UNLIKE in April 2021 and Oct/Nov 2021 where sellers waited for 60k+ to start selling properly, those same sellers are happy with selling at 50k. This would tell us that "something" has changed since those highs and so there is an increase in the probability that the buyers who have stepped in between 30k-40k two times in the last year may not be there to buy again. As such, this would shift probability in favour of the 30k area breaking and us truly entering into some kind of a bear market. To be completely clear, I do not think this will happen but we still must understand the paths Bitcoin could take in the future - we never try to predict, we only prepare.
Conclusion:
Bitcoin has created a bullish trend that has paused to range between 60-70k and 30k. The bullish trend preceding taints this range bullish (creating a bullish tainted range). More evidence that bullishness still remains below the surface has emerged over time with the slight break of the previous all-time high and buyers stepping in faster and slightly higher in the last month than the last time we hit the 30k area in May-July 2021. Strong impulses back towards the all-time high would indicate a bullish breakout of the 60-70k area is imminent, while risk is presented in the form of a faltering of bullish impulses and a strong bearish impulse somewhere between 50-55k bringing us back to below 41k.
M.
This post looks at the possible scenario that has a favourable probability of evolving should bitcoin retain value above the local low of 33k-40k and dives into what is going on behind the scenes that makes this important. I will run through the logical steps traders make to contextualise the market condition in order to establish A) the rough probability of future price action B) the risk involved with trading.
When professional traders look at a chart, they begin by zooming out entirely. They IGNORE the most recent candles (for the time being) and instead look at the overall picture the chart presents, attempting to contextualise what has been the overarching vibe behind price for this asset. Usually looking only at the daily or weekly chart (professional traders don't care about smaller timeframes unless day trading), the most simple way you can think of this is by asking "has price generally been going towards the top right of the screen, bottom right, or flat (otherwise known as bullish trending, bearish trending & ranging).
So let's start here (follow along with the numbers listed on the chart):
1: Here we see extremely strong bullish trending by Bitcoin, reaching a high of 65k. Not only did price massively increase but there was only one small pullback in January 2021 where price paused for a relatively small amount of time. The short-lived length of this pullback, combined with the strength of the bullish impulse gives us a glimpse into the psychology of market participants and the market as a whole during this time. Simplicity is our best friend as a trader and, while it might sound extremely obvious, this price action tells us A) lots of people were very interested in buying bitcoin at any price. Rather than waiting for the January pullback to retest the 20k support or retrace any significant amount, buyers simply weren't keen on waiting. B) Market participants thought Bitcoin was so valuable that they did not want to sell in any significant amount until Bitcoin had reached the 65k area, a whooping 1000/1500% increase since the 3k March 2020 low. While the influences of market participants are different at the time of writing, the psychological behaviours/habits/rationals of participants back then that led to these two things casts a shadow on the current price and where it might go. In a technical sense, this is described as "giving bullish sentiment to current price action", but in normal speak this means "the chance of people buying again as before is higher than everyone suddenly changing their mind and selling." Even inexperienced traders subconsciously know this - ask yourself if you still think bitcoin is going to 100k like you did back then? Most of you will subconsciously still have the same hope/greed/bias EVEN THOUGH we have spent a year bouncing around between 30k-60/70k. The only difference between you and a professional trader is that they are able to realise, act and control this subconscious drive. As such, the pausing of the trend while Bitcoin ranges between 65-30k has a bullish taint to it.
2: The bullish trend paused itself in a bang at 65k. If you think of bullish price action as nothing more than more market participants wanting to buy than sell, eventually when an asset appreciates a lot in value it will reach a point where the number of people willing to buy that increasingly expensive asset dries up. Those looking to sell for a profit increase, shifting the majority of peoples actions away from buying and instead towards selling, ultimately making the price go down. As the price goes down, the exact same metrics apply - if more people are still willing to sell the asset for cheaper and cheaper than those willing to buy it for a discount compared to what it used to be, then price will continue down. Price pauses and stops dropping when enough people think "ah that's cheap now!" and enough sellers think "ah dam it's too cheap to sell so I won't bother" OR "I've sold everything I own and now it's cheaper than before so I will buy".
This gives us some important information. IF Bitcoin had reached its high of 65k and then plummeted all the way back down to 20k or lower, this would tell us that A) there were a lot of people willing to sell for 30/40/50/60/70/80% what Bitcoins value had been B) there was no one willing to buy Bitcoin at a big discount. INSTEAD, buyers were found at 30k and this then sets our two range areas. From this, we can say: 65k is where participants thought it was too expensive to buy while sellers thought it was a good time to sell, and 30k was where participants found the discount attractive enough to step in and sellers had either sold all their inventory or it was too cheap in their minds to sell. With this, we can paint our range boundaries and say - if price goes beyond these two areas SOMETHING is changing compared to before.
3. This concept of "something" having changed is demonstrated when we broke the all-time high of 65k in Nov/Oct 2021. We don't need to know what changed (maybe institutions were buying / maybe technology in blockchain was getting lots more investment) all we need to note is that something made people think "I'm going to keep buying!" even when we hit that 60k resistances area were back in January 2021 those same participants thought price had become too expensive to buy and more people had been willing to sell. The importance of noting this is, combined with the "shadow" of the bullish trend of 2020, allows us to understand that there is an increased probability of Bitcoin eventually resuming its bullish trend and heading on up to our extended price targets of 75k-100k areas, or ATLEAST breaking the all-time high again RATHER than breaking the 30k resistance zone.
4. This same understanding of market psychology and comparing price action can also be used for the most recent low of 33k area and allows us to begin to understand what might be the most probable path for Bitcoin. I say "most probable" because you must ALWAYS remember trading is a game of probability and while things may seem certain because of XXX there is always the chance that a 1% black-swan event may come out of nowhere and mess everything up (Covid/ 2008 housing crash / Russia invading Ukraine).
It is looking like Bitcoin has made its low and is primed for more bullish action. In a simple sense, this tells us that unlike back in May-July 2021 buyers were much quicker at stepping in and sellers less enthusiastic at selling at these current prices. Not only this but the relatively short-lived time spent below 41k also gives huge weight to this argument. Similar to the break of the all-time high, this tells us that buyers across the board since the 65k high in April 2021 have been keen to snap up bitcoin at increasingly more expensive prices and less keen to sell for cheaper prices. Combine this with the bullish taint of the previous bullish trend from 2020 and we can fully understand the probabilities that we are currently sat in - a bullish range breakout is more probable than not.
For this to be even more true over the next few weeks/months, I would like to see a number of strong impulses with very little/flat retraces. This will tell us that sellers just aren't there and, if those retraces are small like that of January 2021, buyers are super keen to jump in whatever the price. The less of this kind of selling consolidation we see the more weight this gives to the bullish argument that is already strong considering the points made in this post.
5. Now we have established the rough probability of one path of action, we must consider that there is always the chance for that to not happen. As such, we need to know the risk involved in this market. The risk is basically "how much can I lose". I can't tell you how to do this step as only you know your entries, but what I can tell you is the conditions for the above scenario to fail, which would shift probability in favour of more downward selling and so the probability that "risk" to your positions will emerge. This can play out in two ways.
A) We fail to maintain price above 41k over the coming weeks, with no strong impulses up. Instead, a retest of the 33-40k area occurs where price hesitates and remains for a few weeks. If this were to happen it would tell us that people are just not buying as the less time we spend at support = the more buyers that are there and so the stronger that support is / higher prices will bounce off of it due to bullish momentum. It is relatively common for a retest of the lows to occur so some kind of minor higher low, potentially of 38k has a high chance of evolving but to give more favour to the wider bullish scenario of breaking the all-time high I'd prefer not to see this.
B) Bullish momentum from the lows carries us towards the middle of the range at 50k (remember the range is 60-70k range high and 30k range low), where we see sellers stepping in and pushing price down towards the lows again. This would tell us that UNLIKE in April 2021 and Oct/Nov 2021 where sellers waited for 60k+ to start selling properly, those same sellers are happy with selling at 50k. This would tell us that "something" has changed since those highs and so there is an increase in the probability that the buyers who have stepped in between 30k-40k two times in the last year may not be there to buy again. As such, this would shift probability in favour of the 30k area breaking and us truly entering into some kind of a bear market. To be completely clear, I do not think this will happen but we still must understand the paths Bitcoin could take in the future - we never try to predict, we only prepare.
Conclusion:
Bitcoin has created a bullish trend that has paused to range between 60-70k and 30k. The bullish trend preceding taints this range bullish (creating a bullish tainted range). More evidence that bullishness still remains below the surface has emerged over time with the slight break of the previous all-time high and buyers stepping in faster and slightly higher in the last month than the last time we hit the 30k area in May-July 2021. Strong impulses back towards the all-time high would indicate a bullish breakout of the 60-70k area is imminent, while risk is presented in the form of a faltering of bullish impulses and a strong bearish impulse somewhere between 50-55k bringing us back to below 41k.
M.