When intending to profit from fluctuations in the financial markets, we have to anticipate and proact the flow of money of other financial actors.
Technical analysis is probabilistic framework for doing so.
Right now, Bitcoin is in unchartered territory, so we look for additional factors that could indicate the current state of the trend.
Considering the inverse correlation between the dollar's strength and Bitcoins performance, we conclude that the recent bitcoin rally is likely to halt at the current level as there are multiple inflection points that would need to be broken without respect for it to contine at this rate.
These points we see on the charts:
The US Dollar currency index to the left (which gauges the strength of the dollar) is at the Jan. to Feb. 2018 support. This level has proven as an inflection point in early 2009 and mid 2010 as well.
Yesterday and today, we've seen price respect this support zone, printing a pinbar at the most recent candle.
Also, the inflation is back to it's previous, pre-corona rate (see
WM2NS
), which could stop the current dollar flight.
Similarly, the USDT dominance to the right (percentual market share of USDT with respect to the entire crypto-sector) approaches the zone 2% inflection point.
Furthermore, the lower bound of the upward trend will soon be reached.
Hence, we need to be cautious at the current level and keep an eye on how the dollar reacts to the current level.
There are two scenarios on how this plays out. One of this will unfold in the following weeks.
Either, Bitcoin will continue to rally and ignore the potential trend reversal in the dollar, or it will pull back and consolidate for a few weeks, respecting the dollar.
We can balance the risk of both scenarios by reducing the position at the current level.
A neat way moving from analysis to action is the regret minimization framework.
Simply put: will I regret doing X, e.g. selling off part of my position?
Or more explicitly: will there be an opportunity to reenter the current position at the current level or better?
In my oppinion this is a yes.
I hope you found this helpful!
Technical analysis is probabilistic framework for doing so.
Right now, Bitcoin is in unchartered territory, so we look for additional factors that could indicate the current state of the trend.
Considering the inverse correlation between the dollar's strength and Bitcoins performance, we conclude that the recent bitcoin rally is likely to halt at the current level as there are multiple inflection points that would need to be broken without respect for it to contine at this rate.
These points we see on the charts:
The US Dollar currency index to the left (which gauges the strength of the dollar) is at the Jan. to Feb. 2018 support. This level has proven as an inflection point in early 2009 and mid 2010 as well.
Yesterday and today, we've seen price respect this support zone, printing a pinbar at the most recent candle.
Also, the inflation is back to it's previous, pre-corona rate (see
WM2NS
), which could stop the current dollar flight. Similarly, the USDT dominance to the right (percentual market share of USDT with respect to the entire crypto-sector) approaches the zone 2% inflection point.
Furthermore, the lower bound of the upward trend will soon be reached.
Hence, we need to be cautious at the current level and keep an eye on how the dollar reacts to the current level.
There are two scenarios on how this plays out. One of this will unfold in the following weeks.
Either, Bitcoin will continue to rally and ignore the potential trend reversal in the dollar, or it will pull back and consolidate for a few weeks, respecting the dollar.
We can balance the risk of both scenarios by reducing the position at the current level.
A neat way moving from analysis to action is the regret minimization framework.
Simply put: will I regret doing X, e.g. selling off part of my position?
Or more explicitly: will there be an opportunity to reenter the current position at the current level or better?
In my oppinion this is a yes.
I hope you found this helpful!
Comment:
20 Hours later, Bitcoin is down 6.5% to ~36k. It may go much lower.