[BTC] Analysis June 2018: Bitcoin’s Moment of Truth

Position: $6750 Short (Closed)


  • –Wyckoff redistribution vs. accumulation
  • –Evidence of high supply above the range
  • –Volume behavior is mixed but leaning bearish for now.
  • –Target for support is $6100
  • –Support failure target is $5800-$5500
  • –Reversal potential failure target is $7500

Recently, in a much longer article I shared my 2012-present analysis of Bitcoin. Today, I will look at the current price action using the 6 hour and 1 hour charts. I am bearish short term, but I feel that we will soon see a reversal into a new uptrend. As to how long it will last, it is currently impossible to say. I closed my short from $6750 this morning, and I am currently watching the base of the range ($6100) for signs of a bullish reversal. But, before we get deeper into my analysis, let’s discuss some methodology and terminology.

Method of Analysis

Wyckoff theory plays a large role in how I look at price action, volume, etc. The aim of Wyckoff analysis is more or less to determine what large investors are doing–accumulating new positions or distributing held positions–and attempt to trade with them rather than being cannon fodder for their stop hunts, sell offs, and buy ups after panic-induced selloffs.

I won’t go into enormous detail about Wyckoff, but it is a powerful tool when used correctly. It is NOT a pattern system. It takes a long time to master, and I learn more and more every single day.

The following are some basic terms you will see referenced in my charts:

1) The selling climax (SCLX) is the point at which a downtrend stops and the price falls into a new range.

2) The automatic reaction (AR) is the change of character that establishes the upper resistance of the new trading range after a downtrend, and the SCLX establishes the lower support the same. These are two of the most important aspects of Wyckoff trading.

3) A change of character (COC) is when the direction and momentum of the price action changes.

4) A secondary test (ST) is a test of either support or resistance in the new range.

5) A spring happens when the price breaks the lower support of the range and immediately reverses upwards followed by a volume expansion in the direction of the upwards price action. This is the reversal point of an accumulation range and the start of a new uptrend.

6) A sign of weakness (SOW) is when price breaks below the trading range with increased volume and little evidence of buying at this level. These are simplified explanations of a few Wyckoff characteristics, but they will do for this article.

Market Analysis

Now let’s take a look at some charts:

The hourly chart above is from June 20. Price fell from the previous range, saw some redistribution, and continued down. We hit a selling climax at $6108 as evidenced by the high volume spike followed by a long wick which is indicative of significant demand at this level–a change of character.

This climax also bounced off of the downtrend channel from $10k, which has happened numerous times during this downtrend. See below:

After the selling climax, price fell into a range establishing an upper resistance level at $6605. We fell from there for a second test that formed a second support level at $6324 which coincided with historical support at $6338.

Price reversed upwards from here to break above resistance for an upthrust to $6735 which was met with high selling pressure forming long top wicks. This was the first change of character for the range. Price broke from the uptrend channel and fell into a downtrend.

Price fell for a possible sign of weakness for this higher support level of the range, bounced, came back down to find support at this level, and showed its second change of character reversing into an uptrend inside the range. Using the volume profile, historical support/resistance, and price action, we can determine that the mid support/resistance area is $6424-$6550.

The change of character was followed by a series of higher lows with a break out that tested the upper resistance of the range, broke above the uptrend channel, and broke out of the downtrend channel from $10k. The attempt was met with heavy selling near historical support of $6814. Price dipped from here back into the channel to find support at the $6605 level.

A second attempt to break above resistance was made with a similar outcome, and price initially found support on the channel making its final higher low.

In the chart above, you can see a breakout of a symmetrical triangle that appears quite convincing. This pulled in longs for a potential trap. You also have an EMA golden cross on the hourly. Volume appeared slightly bullish with each up move, but the high volume concentration at the top of the range suggests continued selling at this level.

This is likely due to longs being aware of the counter trend trade they’ve taken, and are taking profits at a strong resistance level. This is becomes more obvious on the second attempt to break resistance when we see buying volume make a lower high and drop off immediately. Buying pressure is weak and likely coming from retail.

Given the historical and current price action between $5900-$6300, it is likely that large limit buy orders are closer to the base of the range. Retail traders alone were not able to push the price higher.

Large investors wanted the price to be cheaper, and did not come in behind retail to push the price above resistance. My read at the time was that this was likely a false breakout, and that we would come back down to the base of the range. This is where I opened my short.

To further justify my short positions, I used fibonacci channels from all time highs. These channels have been impressively reliable over the last few months, as evidenced by the red highlighted areas. See the charts below:

I used these fibonacci channels to aid me in projecting how the price may behave. I expected the price to either hit or come quite close to the fib channel line and fall down from there. I expected a test of the uptrend line/channel of the range and a test of the next fib channel line that may or may not bounce slightly before continuing down to the base of the range. I planned to close my short at $6100 and wait for confirmation of a bounce off the base of the range or a continuation down to my longer term targets between $5500-$5800.

The point of failure for a bounce in either case is about $7500 which a strong resistance level on the volume profile, an intersection of the previous log uptrend we broke after falling from the previous range, and the midpoint of that range.

Price is likely to meet heavy selling pressure here and fall back into a new range for either reaccumulation resulting in a uptrend continuation or distribution resulting in a dead cat bounce likely plunging us deeply into a bear market.

The next chart is from the following day, June 21. Here we breached the upper resistance turned support and fell back into the channel. We made a series of lower highs. The probability of a break to the downside became even more likely.

The final chart below is from today, June 22. The scenario I expected played out quite well. We found very little support at the $10k downtrend channel or the fib channels. Price fell through all potential support levels on high volume. Over the next few hours or possibly days, we will be able to see if this range will reverse into an uptrend or continue down towards my long term targets.

We are forming would could become a spring at the base of this range. However, this break below support could be a sign of weakness followed by a failed rally and a downtrend continuation. It is possible that if price does bounce from here that we will test the highs of the range again for a potential break out. We will soon find out.

DISCLAIMER: Futures, stocks, options, and cryptocurrency trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks, options, and cryptocurrencies may fluctuate, and, as a result, individuals may lose their original investment. If the market moves against you, you may sustain a total loss. You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from a financial advisor.

All trading strategies, charts, etc. are used at your own risk.

Any content produced by myself should not be relied upon as advice or construed as providing recommendations of any kind. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations. Past results are no indication of future performance. In no event should the content of this correspondence be construed as an express or implied promise or guarantee.

None of the content published by myself constitutes a recommendation that any particular investment, portfolio of investment, transaction, or investment strategy is suitable for any specific person. I will not advise you personally concerning the nature, potential value, or suitability of any particular investment, portfolio of investments, transaction, investment strategy, or other matter.

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