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Bitcoin: Accumulation/Distribution and Support

General

When it comes to a bubble, the concept of support is not traditional as we understand. To me the support develops in stages.

Before you understand the support, recall the following definitions:

Support Level: It is a single price level at which level demand is expected.

Support zone: It is a price range that ultimately becomes a demand zone.

Stage-I (Near Parabolic Rise): A highly volatile environment, where the price may briefly hit the demand zone.

Stage-II (Confirmed Decline): It is a second phase when the price makes lower highs with reducing volatility. Price may still fluctuate at weekly ATR on daily basis. 

Stage-III (Reduced Decline Acceleration): Extremely reduced volatility that is often historical. Less trading interest, and very low volumes. This stage usually takes time such as months or years.

Despite knowing these things, you may not assume that a Price-X is a support. Usually at Stage-III price may still decline a bit but since the volatility is low, it won't go as deep as one may expect. That show a slow building of the buying pressure. Thus, it is always recommended to locate the support zone rather than the support line.

Accumulation/Distribution Line (ADL)

ADL is your friend when it comes to the identification of a support zone.  

Here comes Bitcoin Daily chart first to understand first how important it is.

a) Price makes a top and then drops but ADL keeps on integrating i.e. increasing/rising. This is due to the fact that the past trend was rising and people were buying but the sellers were in control since the price kept on dropping. This is a strong bearish momentum and Stage-I (past parabolic rise).



(b) As we continue, BTC falls from 20K to 10K psychological levels and ADL continues to rise. Thus, again bearish divergence. This marks the beginning of State-II. Post this, I do not expect sellers to sell with the same volatility as they used to do in the early days of decline.



(c) Here comes the continuation of Lower Highs Trend (Yellow line). But the bottoms are not the same. That is a transition from Stage-II to Stage-III. You first see a regular bullish divergence against ADL. Then a distribution, where the price tries to correct but cannot fall below 6K on daily and the volume shrunks to 5K on daily on a single exchange. By this point, the support zone 5800-6800 has been back-tested several times.





Weekly Perspective

Now we know that the support/floor is forming and we are in Stage-III. All we want to know weather the big picture i.e. weekly tells the same story or not.


As you can see above, from 20K we drop on weekly and ADL rises putting bearish divergence. We enter in a bear market with reducing volatility, see the reducing heights of each rally. This makes a bullish wedge on ADL where the tops are slowly declining i.e. decreasing acceleration to break the support whereas the buying pressure builds-up from April. According to this wedge, we are at almost at its edge. 

According to ADL model and interpretation, I am about 60-70% confident that we will break this wedge and expect at least  $5000 move-up from here as per ADL triangular wedge.  If the price rises only $1000-$2000, and pulls back to the support level that should be first considered as a back-test. Once that move breaks the support (e.g. 6K) and trades below for days, the divergence will be invalid and will will consider it as a failed divergence.

Verdict

The main thing is that we cannot predict the future but we can expect something based on past data and choose our direction. At this moment, I remain bullish above 6K support and will go long upon a B/O of 6800 on a volume as per books. Take profit during the journey until negative divergence appears. This means that ADL is confirmed and BTC can rally at least $5000 from the support level i.e. +10K. So, there is a chance of making some profits.

Given 10K becomes future support, then you know how will you trade since it can break the next psychological level e.g. 15K or even 20K by year end.

Contrarily, BTC can still break 10K and come back to 6K as a future back-test. Then you plan a short at 10K following any negative divergence on Daily since it will have regained enough momentum to break the 6K support by that time.

That is how it goes with prediction. You have to have a plan & for now this is my vision and trading plan until the year end. 




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