Bitcoin - Defining Structure - Proportions - Trends & Momentum
From day to day, week to week, Furus continue to jump from bullish to bearish looking at shorter term time frames. Often we are asked why we do not short this market and this is defined initially by a strategy we determined early on. No different than "Long Only" funds that only trade one way.
One of the reason investors like "Long Only" funds is they are trading the market based on a broader trend. Yes trend is much different than momentum and it is important to understand this.
In order to spot a broader term trend we look at the structure of shorter term trends, and determine whether the market is bullish or bearish. Very simple and on the monthly chart above, it is clear we have a broader term bullish trend.
Breaking down the trend we have a series of bullish swings followed up with a consolidation. I say consolidation vs a trend because of the time frame we are looking at. This is the structure of the market, and clearly the structure is bullish in the long term. Now could we be entering a broader bearish trend? Sure we could but there are some technical levels that need to be taken out in order to change our position.
Note the market has cycled pretty much in a two year cycle with two year bull markets followed by two years of bearish or consolidating periods. But the structure (in blue) is a higher high and higher low for the market cycle. Again looking at the cycle (time period), the structure along with price there is no doubt we have a series of higher highs and higher lows.
Even the proportionality of the swings are equal, as in EW theory, Wave 4's are often proportional to Wave 2's. So we have some proportional aspects of our structure as well. This is all indicative of order flow, which is bullish over the long term.
So in the short term are we trending, or is this just bearish momentum and part of a consolidation? The answer is we are likely consolidating.
Bitcoin Weekly:
In the shorter term, the evidence for a continuation of a broader bullish trend is evident. The one year consolidation back in 2018 has a very broad and defined corrective structure. We are also in a broad corrective structure and in order to tilt the scales of probabilities that this is a part of a very broad correction (WXY) we would need to see the low of the previous structure taken out ($6000 for sake of rounding up).
In order to tilt the scales of probabilities that this is part of a broader bullish impulse wave (in blue 1,2), we need to see the 15,000 level taken out. So in short we really do not know for sure, or the evidence is still evolving whether this is part of a broader Wave 5 or still part of a Wave 4 correction. However we do have some levels that increase the probabilities of one or the other, but neither has been taken out yet.
So common sense has us falling back on the broader trend which is still bullish, to think this is part of a broader correction is speculating and there is simply not enough evidence at this time to make that assumption.
Bitcoin Daily:
Looking at the shorter term time frame (daily candles) we have a series of consolidation structures. The current structure has not taken out the low of the previous structure (blue) none the less the broader proportional structure (magenta).
The key level here is approximately 6890 or 6800 if you round off. Structure is indicative of the current sentiment or cycle of the market. Bullish cycles are followed by bearish cycles in different time frames, the key is looking at the proportionality of the structure to provide insight as to whether this is really a series of higher highs and lows, or a series of lower lows and highs.
Time is a basis for this subjective perspective. Notice how we can identify the weight of consolidation based on the time element or length of correction. This is where many that are new to EW make a mistake. In orange I labeled a valid wave count which would have us completing a shorter term 5 wave fractal, but the proportionality of the structure is not really there.
This is more likely a wave 4 mid term cycle (shown in dark blue) and it is not uncommon for wave (v) the shorter term fractal to pullback to the area of wave (iv) in the shorter fractal. Since we have the completion of several fractal impulse swings the broader fractal is more complex and generally (but not always) drawn out in time.
The proportion of the consolidations is such that Bitcoin is completing a Wave 4 fractal cycle as part of a broader wave 1 or 3. Yeah gets confusing but look back at the structure and proportional measures of the corrections.
Currently Wave 4 equals Wave 2 which often is a bottom in the interim time frame. The corrective portion of the fractal cycle (wave (i) thru (v), has pulled back to within wave (iv). In short we have a lot of evidence based on short and broad term structures that we are still in an overall multi-year bullish trend.
So why are many calling for this as a bearish cycle? Well it depends on your time frame.
Many may consider this a "bearish trend on smaller time frames, and looking at the structure on a 4 hour chart, one could make the point. However is this bearish momentum or a bearish trend even on this time frame.
A little mixed here, as you can see that the current structure is lower than the preceding two consolidation structures (shown in magenta). However the broader structure (in blue) has not taken out the low of the previous structure that is proportionally relevant. That is right "Proportionally relevant"!
Consolidations on shorter term time frames are only relevant to that time frame based on proportionality. So the current price action in perspective to broader structures is not a bearish trend, but is bearish momentum. In simple terms we have a series of shorter term consolidations that have taken out the low, but the overall consolidation has NOT taken out the proportional prior low.
So this is IMO not a bearish trend, just bearish momentum in a broader consolidation of an even broader bullish trend. The 4 hour chart is more relevant for day-trading where you are trading directional momentum on shorter time frames. I could break this down into shorter time frames or fractal structures where on the 5 minute it may be bullish momentum and on the 30 minute bearish. Do not get momentum confused with trend.
Clearly on the weekly and monthly charts and even on the daily, the trend is bullish. So if you are swing trading, you want to trade with the trend. Since our strategy is based on the weekly and daily charts this is the time frame we focus on.
But what about consolidations that are bearish in nature? Trading consolidations is tricky, as we have mentioned numerous times, because price action is more random. This increases the probability of being knocked out of trades even when your premise was correct. The reason is, you are trading counter to the broader trend.
So long term we remain bullish because the structure is indicative of a broader bullish trend unless we start to see broader consolidation lows (like the 6000 level) taken out. Technically the low is around 3200 but either way we stick with the trend until evidence provides reason to change.
Why not short this market? Well for one thing it is not as liquid as say the IWM, SPY or QQQ. From experience, trading counter trend in "non liquid" markets or equities can be painful. The Bid / Ask spread is to wide, potential for slippage is elevated and counter trading broader trends is risky to begin with. Especially with something like Bitcoin that can move 5-10% in a day.
Do the math at 50/1 leverage, a 2% move liquidates the position. Bitcoin can do that in minutes, where something like the IWM seldom goes up more than 2% in a day. Not only that there is little slippage, if, and when, you need to exit because the market is extremely liquid. Many furu short sellers with several months of experience are learning their lesson shorting Tesla. Ohhh that is a painful short.
In the short term (daily) taking out the 8550 level would be a bullish long trigger. IF it does, we expect the next swing to be into the mid to upper 9000 area. IF we take out the 7600 level we may see a retest of the low to mid 6k area, but unless the 6000 level is taken out we will continue to look for longs.
Understanding order flow and market sentiment is not as easy as identifying a pattern on the chart. It is putting trends, structure, proportionality and momentum into perspective. More importantly is identifying the ones that are relevant based on the time frame. Clearly the long term market is still bullish, and anyone saying otherwise is speculating not looking at the broader chart.
Been really busy so have not had time to update on TV, as it takes 4-5 hours to write an article, but I wanted to provide a perspective that is often overlooked and misunderstood. Sure it is my subjective view on the markets, take it or leave it, but hopefully it provides a different perspective for which you can make your own rational decision.
In the end it is your money and you push the button to buy or sell. Having different perspectives often leads to making better decision making.
One of the reason investors like "Long Only" funds is they are trading the market based on a broader trend. Yes trend is much different than momentum and it is important to understand this.
In order to spot a broader term trend we look at the structure of shorter term trends, and determine whether the market is bullish or bearish. Very simple and on the monthly chart above, it is clear we have a broader term bullish trend.
Breaking down the trend we have a series of bullish swings followed up with a consolidation. I say consolidation vs a trend because of the time frame we are looking at. This is the structure of the market, and clearly the structure is bullish in the long term. Now could we be entering a broader bearish trend? Sure we could but there are some technical levels that need to be taken out in order to change our position.
Note the market has cycled pretty much in a two year cycle with two year bull markets followed by two years of bearish or consolidating periods. But the structure (in blue) is a higher high and higher low for the market cycle. Again looking at the cycle (time period), the structure along with price there is no doubt we have a series of higher highs and higher lows.
Even the proportionality of the swings are equal, as in EW theory, Wave 4's are often proportional to Wave 2's. So we have some proportional aspects of our structure as well. This is all indicative of order flow, which is bullish over the long term.
So in the short term are we trending, or is this just bearish momentum and part of a consolidation? The answer is we are likely consolidating.
Bitcoin Weekly:
In the shorter term, the evidence for a continuation of a broader bullish trend is evident. The one year consolidation back in 2018 has a very broad and defined corrective structure. We are also in a broad corrective structure and in order to tilt the scales of probabilities that this is a part of a very broad correction (WXY) we would need to see the low of the previous structure taken out ($6000 for sake of rounding up).
In order to tilt the scales of probabilities that this is part of a broader bullish impulse wave (in blue 1,2), we need to see the 15,000 level taken out. So in short we really do not know for sure, or the evidence is still evolving whether this is part of a broader Wave 5 or still part of a Wave 4 correction. However we do have some levels that increase the probabilities of one or the other, but neither has been taken out yet.
So common sense has us falling back on the broader trend which is still bullish, to think this is part of a broader correction is speculating and there is simply not enough evidence at this time to make that assumption.
Bitcoin Daily:
Looking at the shorter term time frame (daily candles) we have a series of consolidation structures. The current structure has not taken out the low of the previous structure (blue) none the less the broader proportional structure (magenta).
The key level here is approximately 6890 or 6800 if you round off. Structure is indicative of the current sentiment or cycle of the market. Bullish cycles are followed by bearish cycles in different time frames, the key is looking at the proportionality of the structure to provide insight as to whether this is really a series of higher highs and lows, or a series of lower lows and highs.
Time is a basis for this subjective perspective. Notice how we can identify the weight of consolidation based on the time element or length of correction. This is where many that are new to EW make a mistake. In orange I labeled a valid wave count which would have us completing a shorter term 5 wave fractal, but the proportionality of the structure is not really there.
This is more likely a wave 4 mid term cycle (shown in dark blue) and it is not uncommon for wave (v) the shorter term fractal to pullback to the area of wave (iv) in the shorter fractal. Since we have the completion of several fractal impulse swings the broader fractal is more complex and generally (but not always) drawn out in time.
The proportion of the consolidations is such that Bitcoin is completing a Wave 4 fractal cycle as part of a broader wave 1 or 3. Yeah gets confusing but look back at the structure and proportional measures of the corrections.
Currently Wave 4 equals Wave 2 which often is a bottom in the interim time frame. The corrective portion of the fractal cycle (wave (i) thru (v), has pulled back to within wave (iv). In short we have a lot of evidence based on short and broad term structures that we are still in an overall multi-year bullish trend.
So why are many calling for this as a bearish cycle? Well it depends on your time frame.
Many may consider this a "bearish trend on smaller time frames, and looking at the structure on a 4 hour chart, one could make the point. However is this bearish momentum or a bearish trend even on this time frame.
A little mixed here, as you can see that the current structure is lower than the preceding two consolidation structures (shown in magenta). However the broader structure (in blue) has not taken out the low of the previous structure that is proportionally relevant. That is right "Proportionally relevant"!
Consolidations on shorter term time frames are only relevant to that time frame based on proportionality. So the current price action in perspective to broader structures is not a bearish trend, but is bearish momentum. In simple terms we have a series of shorter term consolidations that have taken out the low, but the overall consolidation has NOT taken out the proportional prior low.
So this is IMO not a bearish trend, just bearish momentum in a broader consolidation of an even broader bullish trend. The 4 hour chart is more relevant for day-trading where you are trading directional momentum on shorter time frames. I could break this down into shorter time frames or fractal structures where on the 5 minute it may be bullish momentum and on the 30 minute bearish. Do not get momentum confused with trend.
Clearly on the weekly and monthly charts and even on the daily, the trend is bullish. So if you are swing trading, you want to trade with the trend. Since our strategy is based on the weekly and daily charts this is the time frame we focus on.
But what about consolidations that are bearish in nature? Trading consolidations is tricky, as we have mentioned numerous times, because price action is more random. This increases the probability of being knocked out of trades even when your premise was correct. The reason is, you are trading counter to the broader trend.
So long term we remain bullish because the structure is indicative of a broader bullish trend unless we start to see broader consolidation lows (like the 6000 level) taken out. Technically the low is around 3200 but either way we stick with the trend until evidence provides reason to change.
Why not short this market? Well for one thing it is not as liquid as say the IWM, SPY or QQQ. From experience, trading counter trend in "non liquid" markets or equities can be painful. The Bid / Ask spread is to wide, potential for slippage is elevated and counter trading broader trends is risky to begin with. Especially with something like Bitcoin that can move 5-10% in a day.
Do the math at 50/1 leverage, a 2% move liquidates the position. Bitcoin can do that in minutes, where something like the IWM seldom goes up more than 2% in a day. Not only that there is little slippage, if, and when, you need to exit because the market is extremely liquid. Many furu short sellers with several months of experience are learning their lesson shorting Tesla. Ohhh that is a painful short.
In the short term (daily) taking out the 8550 level would be a bullish long trigger. IF it does, we expect the next swing to be into the mid to upper 9000 area. IF we take out the 7600 level we may see a retest of the low to mid 6k area, but unless the 6000 level is taken out we will continue to look for longs.
Understanding order flow and market sentiment is not as easy as identifying a pattern on the chart. It is putting trends, structure, proportionality and momentum into perspective. More importantly is identifying the ones that are relevant based on the time frame. Clearly the long term market is still bullish, and anyone saying otherwise is speculating not looking at the broader chart.
Been really busy so have not had time to update on TV, as it takes 4-5 hours to write an article, but I wanted to provide a perspective that is often overlooked and misunderstood. Sure it is my subjective view on the markets, take it or leave it, but hopefully it provides a different perspective for which you can make your own rational decision.
In the end it is your money and you push the button to buy or sell. Having different perspectives often leads to making better decision making.
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