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There Will Be Blood – BTFD Edition (Vol 2)


So, I was watching Magical Crypto Friends the other night. Not 10 minutes after, I spotted a couple frolicking around IRL. This must be an omen to buy the dip.

As promised, Vol 2 of There Will Be Blood. But first, a big thank you for all your kind words, and for putting Vol 1 on the front page of r/Bitcoin for like, at least 5 minutes. A milestone for this blog, no doubt. Now we can all be magical crypto friends.

Today we’re going to take a deep dive into Bitcoin technicals. If you’ve been following me for some time, you’ll be delighted to learn I’ll be translating this into English today:

As some of you know, I’ve been trading since 2008 – charted more in my day than I care to admit. My model has evolved over the years, but the general premise is that I’m looking for the most basic and subscribed TA available. That primarily revolves around price, volume, simple technical patterns and support/resistance.

Further, a bit of semantics so we’re on the same page – I don’t believe TA is predictive. It is insightful for understanding range and identifying patterns. All I ask of TA is to put me on market decision points, in a position with better than average probability. It’s all about testing patterns and not about predicting the market. That’s a great way to get rekt. Just thought we’d get in front of that one before the Vinny’s of the world pipe up.

Anyways, this will be a historic first for me – removing every single drawing and examining them individually. More exciting than watching grass grow, let me assure you!

Alright, freaks…

Let’s Take ‘Em to The Zoo

Monkay.

So let’s wipe the chart and break it down into individual pieces within the current range. Afterwards, we’ll merge everything back into one and hopefully have an idea of what all those lines mean in the greater context. You might even understand my charts next time you see one! Maybe.


EMAs

Personally, I prefer EMAs over SMAs and look strictly at the 100 and 200. I find these to yield higher expectancy than their shorter counterparts. I also understand these to be decent approximations of market making activity. These are important so I’m going to spend a bit more time on them. You never go forever without hitting these lines.

1W 100/200 EMAs (Bitstamp $BTCUSD)
Log Scale

We don’t have enough periods on Bitstamp to calculate the 200 back to 2015, though we would if you factor other exchanges like Mt. Gox. As such, I’ve estimated the 200 here with a dotted line. Important also to note that the Bitstamp hack occurred on those Jan 2015 lows. This estimate is the 179 period EMA so the 200 would have been lower.

On Gox and Stamp, we have never closed a weekly below the 200. We have wicked twice but never closed. This is a massive level for Bitcoin bulls. The only downside breach of the 100 I count led to a 2 month consolidation of that line followed by 10 months of consolidation between the 100 and 200 EMAs. We broke out of the doldrums October 2015, wicked back to the 100 2 weeks later, and have never looked back since.

Troubling today that these averages seem to be rolling over. Limited sample size to work with, but they’ve never flattened out like this and continued up without an extended period of down. We’re probably due for a print of the 1W 100 EMA at some point, if not the 200.

1D 100/200 EMAs (Bitstamp $BTCUSD)
Linear Scale Log Scale Scenario 1 Scenario 2

I’ve highlighted a few points here on the 1D linear. Since our last 100/200 cross (green circle), price has appreciated over 3400% and US$8000 over 829 days. We hadn’t touched the 200 since August 2016 (though we did come within ticks last March). We had touched either the 1 or 200 in 7 previous occasions without closing below the 200. That pattern has finally broken down. Before last week, we hadn’t closed below the 200 since October 2015 (~2.25 years).

We’ve only seen 2 1D death crosses (200 crossing below the 100) since Mt. Gox began trading in 2010.

  • Oct 2011: Price dropped 72% from the 200 EMA over 245 days before crossing back above.
  • Sep 2014: Price dropped 72% from the 200 EMA over 422 days before crossing back above.

Yikes. In ‘Scenario 1’ above, I look at what this type of pattern repeating today could look like. In this example, I’m only looking at EMA changes, so price would travel further than this, even in my example. Also, I based the forecast data only on Bitstamp, although Mt. Gox did trade numbers close enough for our averages to be in the ballpark. Long story short, if price fails to crawl back above the 200 and hold, we could see extended down in the short term and the first 1D death cross since 2014.

If so, better buckle up. When that move’s done, next stop is 6 digits. Minimum US$250K based on $BTC golden cross averages. With fundamentals as they are, a death cross today would be the biggest blessing in disguise Bitcoin bulls could ask for – provided they know anything risk management (we’ll talk about this in Vol 3).

‘Scenario 2’ paints the alternative. There was one occasion since 2010, in July 2013, when the daily closed multiple bars below the 200 but did not result in a death cross. Notice how smooth the EMA curve is from 2016 to now? You can see the speedbump in the EMA curve from the 2012-2014 run. It is imaginable that this pattern could repeat now, though the horizons don’t line up and that would say, in theory, that we’re only halfway through the move after ~2 years.

While Scenario 2 could be possible, the upside leading to it in 2013 was much higher and less consolidated than we see today. Further, the upside potential coming out of this could be much more limited. Without a death cross, it would seem difficult for the next leg up to reach 6 digit ranges. Perhaps we could see some low US$100K, but certainly not 250 before the next inevitable 1D death cross, by these averages.

4H 100/200 EMAs (Bitfinex $BTCUSD)
Log Scale Linear Scale
4H Golden Cross Results 4H Death Cross Results

Checking in on the 4H, you can see we’re already in a fully developed death cross. I went back and examined every 4H 100/200 EMA cross since 2010 to get a sense of how this ranked historically. I omitted any false crosses that didn’t develop into a trend to prevent skewing the results. As you can see, the current move cut fast and deep, ranking us above average in terms of pullback on one of the shortest moves. This is the biggest cross-trough move observed since the bear market days of 2012-2014.

Make of that what you will, but I’m keeping an eye on this for leading indicators of a 1D death cross. Since crossing below the 200, we’ve only printed the 100 once and have not closed a single bar above. If we’re reaching an extreme here, you really want to see price start clawing its way back above the 100 to close some of that EMA divergence. Failure to do so short term would not be looking good. If resistance holds at the 100 and we reject it, we’re probably talking retest of $6000 lows and a 1D cross sooner than later.

1H 100/200 EMAs (Bitfinex $BTCUSD)
Linear Scale

I don’t really put much weight on the 1H, but again, watching for leading indicators of the 4H death cross here. The chart above is trade post-ATH. You can see we’ve had one false cross and now 2 periods of low divergence since it began. As I write, we’re trading above the 200 with about $25 of spread to the 100. If we can grab some higher highs here, could see another golden cross short term. Tough to say on this interval if it will stick, but again, a leading indicator of the 4H and 1D if nothing else.


Channels (BFX:$BTCUSD)

The following are the most recent channels within striking distance of the current trading range. There are many ways to draw channels, but I’ve drawn all these on the 1W candle closes. For ascending channels, the upper band is drawn on 2 clear highs with the lower band being drawn on a clear low between. For descending channels, the lower band is drawn on 2 clear lows with the upper band on a clear high between. For reference simplicity, I’ve named each of these by their first data point.

Individual Channels (Linear Scale)
Dec-2017 Channel Aug-2017 Channel June-2017 Channel Feb-2017 Channel Dec-2016 Channel
Channels Merged
4H Chart with EMAs and Labels

Dec-2017 Channel
As you can see, we’re firmly entrenched in this Dec-2017 descending channel. The 4H has a good example of why I prefer to draw these on weekly closes. Had we used the 4H high from our upper band, we wouldn’t have got the touches like on the 1W close. Since AFTER this channel developed, we have seen both 4H wicks and full body candles below support, but barely a wick, let alone a close above resistance. Failure to hold that lower band indicates potential price acceleration to the downside.

This channel midpoint has been active in trade over the last month. Since putting in the $6000 low, these are the first full body candles closing above it. If this mid holds, that’s a potential indication of upside continuation to the upper band. You can also see however, the 4H 100 EMA has been an absolute wet blanket. If price can’t crawl back above the 100, you can probably expect a failure of the channel midpoint short term. Dropping this midpoint would indicate a potential return trip to channel support and a retest of the $6000 low.

Aug-2017 Channel
Take a look at the 4H downside price action through the Aug-2017 channel. Note the upper band penetration and continuation nearly straight to the lower band. Also, note repeated upper band breakouts and failures to midpoint support. On the second midpoint failure, we checked up channel support again, but instead of rejecting, consolidated the lows before punching through. The resulting breakdown took price nearly straight to the upper band of the June-2017 channel.

June-2017 & Feb-2017 Channels
Similar pattern here to the downside price action through the Aug-2017 channel. The difference here is once we bounced off the lower band, price broke back above the upper band and stayed above. Unlike the Aug-2017 channel, there has been no retest of either of these channel midpoints. You can also see price clearly check the upper bands of both these channels for support. In the case of the June-2017 channel, that upper band has now supported multiple times.

That type of price action is a bit a more encouraging than seen through the Aug-2017 channel. The June & Feb 2017 channels are also formed from broader periods, so in theory, should be firmer levels. Keep an eye on those upper bands for a leading indicator of a potential retest of the lows.

Dec-2016 Channel
If price fails to support the Jun and Feb 2017 channels while putting in new lows, watch for potential continuation down to the upper band of the Dec-2016 channel. As the channel formed from the 2016 ATH breakout, these will be key levels. It becomes clear on a breakdown here that prices are no longer accelerating from the 1st new ATH from 2013. Interesting to note as well, the 1W 200 EMA is currently overlapping the lower band of this channel.


Trendlines (BFX:$BTCUSD)

On the broader periods, there are only a few notable trendlines in play here that haven’t already been covered by our channel analysis. As with the channels, these are also drawn on 1W candle closes.

Individual Trendlines
Apr-2013 Inflection Nov-2013 Inflection Jan-2017 Trendline Mar-2017 Trendline Nov-2017 Trendline
Trendlines Merged

These bullish inflections are drawn between 2 clear ATHs. The Apr-2013 inflection is particularly interesting as you can see price really accelerate on the upside breakout. You can also see that’s pretty much bang on the $6000 low here as well. Conversely, will range decelerate on a breakdown of this level? Support density increases dramatically the lower we go from here.

Below that, we have the Mar-2017 and Jan-2017 trendlines. You get a sense of how parabolic price went when you see how we’re still trading above these levels. At the time, these were huge accelerations, but look how flat they look today – especially the Jan-2017 trendline. If we see fresh lows, price could check up that Mar-2017 line.


Fibs (BFX:$BTCUSD)

As with my channels and trendlines, fibs are also drawn on weekly closes. We like to call Bitcoin ‘King of the Full Retrace’ and fib retracements tend to highlight that beautifully. I also find fib extensions particularly useful when price is rising into untraded territory – often times, it’s almost all we have to work with.

There’s a lot of interesting insight in Bitcoin fib ranges that traded prior to 2017. As with other technicals, I’d like to chart these data points for you historically and look at expectancy over time. In the interest of not taking another week and writing a few hundred thousand more words, I’ll save that for another post. We’ll just laugh at nocoiners and talk about fibs as they relate to the current range here.

Individual Fibs
2017-11 Fibs 2017-09 Fibs 2017-07 Fibs 2017-03 Fibs 2013-07 Fibs

2017-11 Fibs
It’s been a minute, but the Emporer finally got its groove back. Haven’t seen a full retrace like this for a good year or two I suspect. You can see this is where price really takes off, and surprise surprise, easy come, easy go. That did not take long. Putting in a higher low there from the last pre-ATH pullback. The saving grace of a violent move up and down like this is that it prevents a bubble from excessively inflating from poor consolidation, as we discussed at length in Vol 1.

All that demand at the end of the year, all your poor friends and family you told to buy Bitcoin at Christmas… thoroughly Rekt with a capital R. While that is unfortunate, and while fibs that retrace this far usually reverse, this is Bitcoin. We are still somehow holding the zero line after a year like 2017 and a move down like in 2018. I’d like to look at real data on this, but long story short, Bitcoin is known to retrace this far and return to the highs. It’s the antichrist of fibs and it’s just trolling here. Will Bitcoin honor its namesake as full retrace king and breakout to new ATHs?

2017-09 Fibs
On this drawing, you can see we’ve yet to close weekly range below the 100% line. We did wick down to about 61%, but price is still firmly trading bullish levels in the 2017-09 fib range. Gotta love the Krugman nocoiners vindicated by that pullback. My goodness, what a bunch of morons. Yes, we traded into the upper echelons of space and the 423% fib (coincidence that’s our ATH?). No, there is not a single person who bought mid-September and prior that is complaining about >100% adjusted gains following one of Bitcoin’s sharpest moves down. What’s the matter? You don’t like gainz? Go buy some bonds you putz. We haven’t even hit halfback on the 2017-09 fibs yet. Maybe this continues to unwind, but it sure wasn’t an elevator down… you’ve had nothing but sweet time to protect against downside.

I think Whalepanda is on to something, we just need investments that only go up so the Krugman’s of the world know what to do with their hands on a daily basis.

2017-07 Fibs
Great, Scott! More volatility. Who wants to own this worthless crap? Can’t be having Bitcoin explode through 423% fibs like this and pull all the way back to the 161%. No sir, that will not do. Any way you slice this, we haven’t touched anything that resembles bearish range on the 2017-07 fib scale. Long, long ways down before we do. Let’s call this one Segwit. Good boy.

2017-03 Fibs
I dedicate this one to Paul Krugman and nocoiners everwhere. You can see we wicked down to the 261% before closing the 361% in a single weekly candle. While numbers may scare us, if you just, look at the pictures… who is hurt here? Certainly not a single penny of smart money. There isn’t much to say, it’s just ridiculously bullish if we can’t erase more gains than that by this account.

Fibs Merged

Exponential markup is happening before our very eyes. Just looking at all the previous cuts from these fibs charts, imagine what the next fib range looks like if we put in a new ATH. The deeper the cut, the bigger the bump. That was taking a butter knife to a 1000KG bull. It’s going to take a damn bus to break this things back. We’re a long bloody way from calling bear markets here.


Fib Pivot Points (BFX:$BTCUSD)
Annual Pivots Monthly Pivots

Fib pivots are dreamy. They tell us where to look for support/resistance based on the previous period of trade. They are very helpful in understanding where you are in a range. With pivots, you’ll notice price either gravitates to a level or consolidates a tight range near a level. It’s not usual for price to just float between them, as we’re starting to see on the monthly pivots right now.

It’s too close to call on the monthly scale, but the annual is looking hungry for some S1 if we can’t keep putting in higher daily highs. That could be spelling S2 for the monthly if so. Keep an eye on these for short-term range targets.


BONUS: Historic Pivot Analysis
(BFX,STAMP,GOX:$BTCUSD)

For this analysis, I compiled historic pivot data going all the way back to 2010. There are well over a thousand manually scraped data points here just for these charts. The monthly has a much nicer sample to work with, but some interesting points on the annual I’ll share as well.

Annual Pivot Breakdown

In 2014 and 2018, you can see the previous year of upside was so great, the entire pivot range cleared the previous range outright. Every other year we saw plenty of overlap between ranges. Though we haven’t always had positive annual S3 or even S2 pivots, it’s interesting that we’ve never traded annual range below the S1. Could 2018 be the year? We’re getting close.

Also interesting to note that annual range either closes between the S1 and R1 or above the R3. There is no middle ground. Bitcoin sees either middling years, or years slammed out of the park – which, by the way, have been 50% of those observed.

Monthly Pivot Breakdown

It’s amazing to see the monthly close more R3 range than any other pivot. We’ve only closed below the S1 less than 20% of the time since 2010.

These scatterplots do a great job of illustrating how efficient Bitcoin trade has been the last few years. The linear has gone ballistic but when you at the log, trading ranges and volatility look pretty smooth on the historic scale. It’s been opening up since the second half of 2017, but no blow off tops of days past.

You would expect to see that after the year and run we had. Look at 2012-2013 for an example of tight ranges followed by explosive breakouts. Suspect we’ll see another one day, but 2017 wasn’t one by Bitcoin standards.

If you look at those forecasts on pivot range, they’re saying we’ll see a 1-month pivot above US$30K in early 2019, and over US$100K in 2020. Now, price has outpaced that forecast to first print of $10, $100, $1000, and $10,000, but it’s been followed by periods of extended consolidation until the trendline catches up. Interesting. Lucky for us, $10,000 is almost bang on time. Based on these patterns, it wouldn’t surprise me to see quick up to $100K, outpacing the forecast, but followed by an extended consolidation period like in 2014.

If you look at the OHLC chart and the 10 period MA, you can see we’re pretty extreme in closed range. Could be due for a period soon where ranges tighten and we trade into support for a while instead of resistance to reload before continued upside.


Putting It All Back Together

Now, I understand the broader periods make your eyes bleed. Most of the time though, we’re not watching a weekly or daily chart. We open them up, take a look, and keep zooming in. In the case of these charts, you’ll also zoom back out to broader periods to identify what a particular line is.

When I’m watching something like a 4H, I suddenly have lots of context on the current trading range. I stay connected to the broadest periods available, without being skewed by what I can only see in the current window. As we know in TA, broader period patterns play much better expectancy than 1 minute or 1 hour patterns. It’s hard to keep track of historic range unless you’re looking at it in your shorter interval charts.


Sloped Lines
Weekly Daily

Horizontal Lines
Weekly Daily

All Lines – Let Chaos Reign
Weekly Daily
4 Hour 1 Hour
Animated

And there you have it. There’s certainly order in the chaos, and when you understand what each line represents, it’s one of the fastest ways to analyze price. To help with organization, I practice using specific colors for certain lines, and specific weights for how far back it goes. If you’d like to play with a live, interactive version of this chart, you can find it here and make a copy for yourself.

When you’ve watched a chart like this long enough, you know it’s no coincidence that this TA plays so often. Hell, it’s even played before I’ve managed to finish this post.

Don’t Say The Skies the Limit While There’s Footprints on The Moon

Alright, let’s put this sucker to bed. We’ll have to cover volume, candle patterns, and historical fib data another time. I hope you didn’t read all that for my definitive crystal ball reading on Bitcoin. If nothing else, you should have an idea of the decision points facing markets in the coming weeks.

TLDR; Pray the 2017 run was well consolidated enough that we don’t see another 2014 now. Though that would likely be the biggest blessing in disguise for Bitcoin bulls, we might still have enough in the tank for more upside with fundamentals accelerating. Keep an eye on the key technical levels described above to see which way it’s leaning.

Factor potential downside risk to somewhere around the 1W 200 EMA, but buy it 6 ways to Sunday with horizon and risk management. If you’re trading it, we’ll talk more about that in Vol 3. Upside forecasts based on pivot data say $30,000 before January 2019 and $100,000 before January 2020.

We’re basically at the precipice of peak FOMO. It will never have been stronger than if we put in new ATHs. When this thing turns up, Bitcoin’s going to make Elon Musk blush. Falcon Heavy ain’t a thang. Buy Bitcoin.

Next Up:

This has been Vol 2 of the BTFD series. Next, we’ll look at trading vs. investing. Some of the topics we’ll hit are portfolio allocation, position sizing, risk management, and systems trading.

If you missed Vol 1, we revisited fundamentals and looked at historical data to get a sense if Bitcoin was a bubble by its own standards.

Hope you enjoyed this second installment. Can I just shitpost charts with 1000 lines now?

Related Posts:

There Will Be Blood – BTFD Edition (Vol 1)

 

Aurie Philipchuk

Bitcoin fellow. Entrepreneur with a trading and investment background. Jack of all trades @Tractai.

 

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