Get shorty: Bitcoin

BTCe Bitcoin sell setup using volume spread analysis

I’m starting to see a nice short setup here across the major Bitcoin exchanges.

The thing that caught my attention was the period price rallied from $450-$650. You can see it losing steam on decreasing volume, than failing to put in new highs. Imagine this like throwing a ball in the air. The closer to the top, the slower it goes, and the lower each subsequent bounce is. Furthermore, if you compare that period’s volume to other recent periods, you can see it’s relatively low. In other words, the demand was lower than we’ve recently seen.

Volume is significant because it tells us the level of market participation. When price moves without volume, it’s a lack of liquidity. That doesn’t mean there aren’t buyers and sellers, it just means a lower percentage are accepting value at those prices. These are misleading situations because they don’t give us a true indication of the broader market, which is the stronger force. When price discovers a range where value will be accepted, you will see high volume. These are the points to watch and base your trades off.

As buying fades near the top of the rally’s range, we find large supply (sellers), which takes the price lower. The price drops because there is a lack of demand (buyers). If this were a strong rally, you would see buyers take advantage of the discounted price and form a strong level of support. That did not occur in this case. The price broke through support with weak effort and drifted lower, triggering the largest wave of selling yet (since the $340 reversal). This indicates supply was available at discounted prices, and based on the large price spreads, no demand to soak it up.

We’ve seen this rally give back nearly 50%, which is uncharacteristic of a strong bull move. Unless we see some heavy buying above $600, my bias on the markets direction is short. Assuming the $650 range was the reversal for this trend, the setup I’m looking for is failed attempts to rally on lower highs. My confirmation for entry will be a high volume sell spike. I’ll look to get short on a retracement of that range when it occurs.

What do you think? Questions? Comments? Let me know.




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