Bitcoin Review and Update
We recently posted a Bitcoin price analysis a few days ago here:
The trade ended up busting.
One of the reasons for why the trade idea busted is because the S/L was placed way too tightly the last time. Even though the content of the trading idea itself acknowledged that $4.2k was a suitable overhead resistance, the S/L for the idea was set at an even lower point than that. This was foolish on behalf of the author.
Bitcoin Price Analysis
Let’s start by tracking Bitcoin’s price trajectory over the last couple of days:
As we can see from the price chart above, there’s been an approximate gain of about 6% for Bitcoin since February 18th. While this is not astronomical, it is definitely another substantive boost.
However, in a little over two weeks, Bitcoin has appreciated by approximately 22%, which is substantial given the depth of the bear market that the cryptocurrency space is still in currently.
At the time of writing, Bitcoin has breached the $4.1k price mark.
Let’s check out what the indicators are telling us about Bitcoin and see what we can possibly expect in the future going forward.
Relative Strength Index
We’re going to switch gears in this price analysis and look at the RSI(7) for Bitcoin on the daily resolution first.
The value of the RSI(7) for Bitcoin on the daily resolution is 87.20 at the time of writing. As noted on the chart above, this value on the daily resolution was only exceeded in July 2018 (88.73) and December 2017 (98.14).
The price is close to exceeding the point that it was at in July 2018. However, it is still far from its peak in December 2017 (98.14).
Despite being heavily in the ‘overbought’ territory, there is no reason to believe that there will be an imminent decline in the price of Bitcoin unless the RSI(7) fails to surpass its previous localized high (87.83; February 20th).
This is shown on the chart below:
Balance of Power RSI (Custom)
This custom indicator was created by using the Balance of Power indicator as an input, smoothing it with various moving averages and then overlaying it on an RSI scale on TradingView.
The purpose of this indicator is to ascertain buy pressure and sell pressure. As with the actual Balance of Power indicator, this indicator usually presents divergence much earlier than almost all other indicators.
Let’s take a look at what its showing us on the daily resolution:
As we can see in the chart above, the Balance of Power RSI is showing us that the buy pressure is at an ‘extreme’, but it is certainly not at an unprecedented level on the daily resolution.
In the chart above, all of the different dates in the past year where the Balance of Power RSI exceeded the value that it is at currently have been labeled.
Thus, given what we see above, there is ample evidence to suggest that the buy pressure is not at its maximum.
Zerononcense Reversion Ribbon V2 [Custom Indicator]
This indicator gives us our first sign that the buy pressure for Bitcoin is waning on the daily resolution (we have seen some symptoms on lower chart resolutions, but this has not translated to daily price action).
The chart above has a lot of information, so we’ll go ahead and condense it below:
- Candle colors are correlated with convergence to signal weakening/strengthening buy/sell pressure. In this case specifically, we can see weakening buy pressure for $BTC on the daily resolution.
- Incremental decreases in the Histogram (one bar being lower than the other) shows that the ribbon is converging. Currently the ribbon is above the zero point (where the Histogram is), so this signals *weakening* buy pressure.
- The phenomenon currently being observed for the Zerononcense Reversion Ribbon V2 also occurred between February 11th — February 16th.
The main difference between the current ZN Reversion Ribbon activity and what was witnessed between February 11th — February 16th is that the ribbon is at a much greater height currently than what it was before.
Currently, the ribbon is at a height of 11.5+ (on the ZN scale; identified above) vs. a reading of 6.9+ during February 11th — February 16th.
Essentially, this indicator can be placed on an OB/OS scale (and indeed it was in the past). If it was, then the current reading would be ‘overbought’.
Trading theory tells us that whenever there is waning buy pressure being exhibited in an overbought condition, there is a strong potential for an impending reversal. Conversely, if there is waning sell pressure being exhibited in an oversold condition, that too would constitute a signal of impending reversal.
In this situation, we see what could be considered waning buy pressure in an overbought condition from the Zerononcense Reversion Ribbon V2.
Exponential Moving Averages
- EMA-12 = $3,816.71
- EMA-26 = $3,703.41
- EMA-50 = $3,719.35
- EMA-100 = $4,078.07
In the chart above we can see that the price is well above the EMA-50. The EMA-12 > EMA-26 & EMA-50, which is expected and bullish as well.
EMA-26 < EMA-50 currently; However, it looks like the EMA-26 is well on its way to surpassing the EMA-50 in under 5 periods (daily resolution).
Today, the price has successfully surpassed the EMA-100. However, we can not say this definitively until the end of the period on the daily resolution. There is a chance that the price consolidates below the EMA-100 and that this remains as a resistance.
If it does not, this would be a significant resistance point that has been breached by the price.
The next reliable EMA overhead resistance (daily resolution) can be found at $4,517.97 [EMA-150]:
Exponential Moving Averages (Weekly Resolution)
The EMA readings on the weekly resolution typically present themselves as even strong resistance/support points than what one would see on the daily resolution.
Above is a picture of the EMA-12 on the weekly resolution. As one can see, the latest candle on the weekly resolution has just surpassed the EMA-12. However, we still have another day (from the time of writing) before this point can be considered officially surpassed.
The EMA-26, EMA-50, and EMA-100 are well above the current price point.
However, the EMA-150 and EMA-200 are worthy of closer examination.
- EMA-150 = $4,726.88
- EMA-200 = $4,118.14
The EMA-200 is the most interesting indicator on the weekly resolution for Bitcoin because the price at the time of writing ($4,142) is just a few dollars above the EMA-200 ($4,118).
This is not necessarily a definitive break, and the EMA-200 could serve as a sufficient impediment (resistance) to further price action.
Relative Strength Index [Weekly Resolution]
Let’s go back to the weekly resolution for Bitcoin and see what the RSI(7) looks like.
Currently, the RSI(7) value is at 53.10 on the weekly resolution. Technically, that constitutes a buy signal (which was created in the last week).
This value beats the high for the RSI(7) set in August 2018, and is just shy of the high created in July 2018 (59.77).
There is nothing to really say other than that, the RSI(7) on the weekly resolution is extremely bullish.
We’ll start with the basic Fibonacci layers on the weekly resolution:
We can see the price interact with the Fib levels several times as well:
If we look at price action in recent weeks, we can see the following is true:
The question (represented by a question mark next to #3) is whether this 3rd attempt to break this resistance point (78.6% retracement level on the weekly resolution) will prove successful.
At this point it cannot be ruled out, although it is hard to imagine that the upside for Bitcoin is much higher than where it currently stands.
Brief Volume Analysis
A slightly shaky aspect of the recent price run up is the fact that it is not accompanied with any substantive volume behind it.
Typically, in ‘bull runs’ or true price reversals, there is accompanying volume to go with the price increase.
Generally, three rules apply in true bull markets/reversals:
- Volume is larger for buy volume than sell volume.
- Buy volume can be seen increasing period over period.
- Increased volume is usually buy volume and decreasing volume is usually sell volume.
The opposite is true in a bear market.
Let’s take a look at the last few candles on the 2D resolution:
Here’s an example of what volume typically looks like after a true reversal:
Even when looking at the volume on the weekly resolution, we can see that the final volume candle is well below the 10-period average currently.
It is well below the 20-week average too:
There is only one more day left in the period before a new weekly period begins.
In order for the current weekly volume to exceed that of the 20-week MA, there would have to be a 40% increase in buy pressure by 11:59 p.m. GMT on Sunday, which is in a little over 24 hours.
The indicators are showing that there is substantial buy pressure for Bitcoin and that, in the long-term (several weeks in advance), it may continue to post gains from where it is at currently.
However, in the short-term, there are no apparent serious catalysts or indicators to suggest that there is any tremendous upside for Bitcoin beyond where it is at currently.
Looking at Bitcoin in the most rationally bullish perspective possible, $4.4k-$4.5k is probably the absolute peak for what one could expect on this run-up before Bitcoin begins to run out of gas.
Therefore, the R/R for this idea is as stands: