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Short

Bitcoin: NVT Trendline break to spark Volatility Breakout

BITMEX:XBTUSD   Bitcoin / US Dollar Perpetual Inverse Swap Contract
Volatility is contracting in Daily Bitcoin to similar levels seen prior to the violent move down from 6000 to 4000.
In this study, we're going to use the NVT indicator as a tool to confirm when could happen the next breakout.
The NVT line has bottomed during December 2018 and already allows us to draw trendlines on it.
We can observe the red NVT trendline being broken in anticipation of the last down move from 4000 to 3600.

Getting back to volatility , we see it coiling hard. And now the question is two-fold:
  • a) When the energy contained by the volatility is going to be released?
  • b) Which direction will take the explosive move?

To answer the WHEN question, I'd like to point the test of the next NVT trendline (blue dots).
I see high probability of a volatility breakout sparking as a result of breaking the NVT trendline. That might be the moment of truth.

With regards to DIRECTION, a solid break under the trendline clearly points towards a Down Move.
In that breakout scenario, I foresee BTC hitting harmonic targets sitting below the actual lows (2800 area).
And that would be the minimum target because an explosion in Daily chart certainly might have enough energy to hit lower levels.

Now, if we see the NVT line bouncing off the trendline, it could trigger a Gartley 222 being drawn.
And that's a move that would coil even more the volatility . It just would delay the resolution of the above questions for some days/weeks.

Right now I'm not reading clear signals to support the case for the Volatility to break in Up Direction.
Certainly, a bounce off the blue NVT trendline followed by a solid breakout above the red NVT trendline could be a good one. It's just that I don't see the signals that support that scenario (at least yet).

Stay tuned for the next significant move! ;)
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Comments

Good post i was considering the butterfly too but im sceptical because XB is not even 0.613 and AC is not above 0.88. Im seeing more likely an ABCD formation with target 3150-3250. The volume is really loe like u mentioned and something should happen soon
Reply
@Leon_G, Yep, actually even when I see high probabilities of drawing a butterfly pattern, I usually take partial profits out of the table on hitting the AB=CD target. And then I let the remaining profit to ride the butterfly extensions.
I could consider exiting the position beforehand in case I'd see the strong reaction at AB=CD target.

Now, the reasoning of the trade lies in the violent start of the CD move and the fact that volatility is entering over-compressing mode. That suggests me reasonable chances of exceeding AB=CD target. This is something I'll keep an eye on.
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