I have been trading markets for 15 years now. Only thing I am certain of is that markets rise and fall. Regardless of market cycle, investor psychology tends to swing from rising optimism followed by growing pessimism. You might think that is simplistic and unhelpful! It is clear that in recent month over all crypto market has been in a secular down trend. That does not mean patterns of up trend and down trends are not formed within the said cycle where by trends tend to serve as the catalyst for their own reversal. Looking at potential up legs and down legs in crypto market. I see massive potential for temporary exponential gains, one following the other, on the back of broad short squeeze - in most cases automated on the back of psychological points where stop losses have been positioned.
As the general sentiment seems to be bearish, one can be certain the continued pessimism will only bread large volume of short positioning among traders. That in my opinion will serve as the cause and catalyst of the short squeeze, perhaps amplified by incoming by orders that could breed an element of euphoria among investors. The higher the markets and breaks short term resistance points the more resistance is built until the short term rally loses steam. The rally, short term by nature, will be deceiving to some - especially to the trader that oblivious the underlying dynamic and mechanics of short selling.
I expect this rally to an average of 17-20% subject to variations depending the scale of short positioning in the market. I would certainly buy the rally. Difficult thing is to identify the right exit point.
@cyberholz, Good question my friend. First you must ask yourself what this chart represents. We must not confuse "short interest" to "short selling". The you have shared reflects the volume of "short selling" (reflect by green candle sticks) and "Short covering" (red candle sticks)..... The chart shows a significant reduction in "short selling"........ seems like very little short covering took place in recent weeks. The bears are greedy, holding tight to their positions and sitting on paper profits only. If anything that says the bears are likely to panic should they see their paper profits diminish on the back of several small up legs or one significant up swing. Considering very little short selling volume took place in recent weeks suggests to me that the upswing will get violent as the market goes up. Meaning an exponential rise on the back of short cover is likely to take place perhaps above 0.35 +/- . The question is what is the current short position held on the books. Short interest is the number of shares that have been sold short but have not yet covered or closed out. Short interest is represented as a percentage floating shares! We dont have solid data on short interest. The crypto exchange market remains relatively primitive with multiple exchange houses operating across the globe.
cyberholz
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@TradingAlpha, Excellent, your elaborate response is highly appreciated!
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