Skip to main content

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. 




Comments

Post a Comment

Popular posts from this blog

Bitcoin: The Golden Ratio

The price movement of BTC has several highs and lows. Timing the future is often unrealistic and many investors, who don't know math very well, stay away from a technical analysis. Often they totally ignore the power that such analysis may bring. Here is an example of BTC from Dec 2017 to March 2018. BTC is in fact following the golden ratio. If we would have known this before, we would be have been trading more effectively than we did in past. You can recreate such a map in your platform and then trace ahead the expected swings. I would advice to consider 5-10% error always due to news. As soon as this golden rule is broken like 15% error, you don't trade with this. While I am waiting for a breakout at 11.8, I thought to share this idea. Crypto Short
Post a Comment
Read more

Bitcoin at 6K - Fourth time and again Price-Volume Aren't in Sync

This is the fourth time bitcoin is touching the 6K and has developed a near 5800 bottom. The price had a free-fall from 8500. However, when it came down to the 6K support, it behaved like it is close to a gravitational pull. Instead, it slows down. Take a look at the price and volume actions. Especially, the OBV and PVT. Both hold a key when it comes to the reversal pattern recoginition. When every one is bearish, you need to look at some out-of-box tools or utilities that can help you in defining a position. When we touch the support 4th time, it simply means that the support is weak. However, this doesn't mean that a rally cannot begin. Every one expects the bitcoin to reach 2K so that it comes a good buy. Ask yourself, will you buy it? Most probably not. Here is a capture of some key divergences: Regular Bullish Divergence against RSI OBV - Hidden Bullish Divergence Regular Bullish Divergence against PVT With these divergences in-hand one should think about accumul...
Post a Comment
Read more

Bitcoin: Eyeing a Reversal Confirmation

Bitcoin is on its way to confirm the reversal pattern. Here are the series of events that happened post the longest bearish trend (50-days long). June 23 was marked as swing zone based on Fibonacci Time Extension. The next day prints a Dragonfly Doji pattern,   which is traditionally a bullish sign. Attempted a panic sell situation but the price couldn't free-fall. Instead, BTC gradually dropped below 6K. Further drop could only put the CMF or volume higher resulting in a strong bullish divergence. This was also notable on the momentum indicators such as RSI. Note that we have not see so many bullish divergences of RSI in case of BTC. We have seen two major bearish divergences near psychological levels (20k, 10k). While the Awesome Oscillator shows twin peaks with some buyers strength. Here is another daily chart with other indicators. Note the swing zone 21 and the follow-up Doji. Conclusion: It is clear that the reversal pattern might b...
Post a Comment
Read more