Mapping New Landscapes in Bitcoin (Part 2)
Updated
The structure of new landscapes is always unknown at first. But if you've ever been hiking, you know there are characteristics that never change. Maybe there's a path in the woods, a consistent slope, or the sound of water. You might look behind and think, "I know so much about where I was, but how do I move forward without the same knowledge of this new terrain?"
We know so much about Bitcoin's landscape below the H&S neckline. Maybe someday you'll remember it as simpler times. But it's a fallacy. There are never simpler times, only familiar ones. For a long time under the neckline we knew nothing, but that didn't stop us from trading. Just because a landscape is new and unfamiliar doesn't mean we shouldn't move forward. Just update your map and don't fall off a cliff, this is all we can expect from ourselves as traders.
In this series of posts, I’ll be explaining our updated map of Bitcoin’s new landscape, layer by layer.
[I]Part 2 - Fibonacci Levels: Finding Natural Paths[/I]
Even irrational markets and their complex collective psychology have natural characteristics that remain consistent and predictable. If you find a slope in a forest, it probably leads to water, and if you're hopelessly lost, that water could lead you to civilization. With Fibonacci retracements, we can expect similar natural paths in Bitcoin’s $6,820 to $7,780 landscape.
On our chart, the black percentage levels are determined by our recent bearish swing from $10,000 to $7,750. The 23.6% sits just below our H&S neckline support. When the same support or resistance is identified using multiple methods, that price is strengthened, such as is the case with the 38.2% at $7,380. For a few days after the breakout, we struggled to close above this level. In our previous post, we identified this exact same price as a weak resistance by looking at historical prices. But now that we find the 38.2% here, the price is strengthened, so we should not consider it weak anymore. And after closing above it today, it’s now no longer a resistance. So we repaint the tree here as a blue non-weak support, giving it a similar strength as the $7,080 support. Our final relevant retracement in the short term is the 50%. Again, this is close to another level we identified using historical prices, the strong resistance at $7,780. Like natural landscapes, there are no coincidences in technical analysis, only consistent patterns that we can rely on to reach our destination.
Our map is becoming more reliable with each layer. But there’s even more detail in this landscape. Within our retracements are also major and minor Fibonacci extensions. These levels act as stepping stones to our targets. The dark gray percentages are our major extensions, determined by the H&S range from $5,750 to $6,820. The light gray percentages are our minor extensions, determined by the breakout range from $6,820 to $7,480. We can see that the H&S range extended to the maximum major extension of -61.8% on the day of the breakout, and found support at the major -41.4% the next day. From the minor extensions, determined by our breakout price range, we see that the breakout has still yet to extend itself. Instead, it has been consolidating in preparation to extend, which we can expect to reach at least to the minor -27.2%, or at most to the minor -61.8%. This last minor extension sits right at the 50% retracement we identified earlier, which we found to be close to the $7,780 strong resistance before that. Yet another sign that we’re on the right path.
With such a confluence of resistances in one area, we can conclude that $8,000 is unlikely in the short term. So let’s just follow our map and not be lead astray by asking for directions from other traders along the way. As much as we want to reach Bitcoin’s summit, we still have a few hills left to climb. In the next post we’ll map out these hills using the volume profiler.
[I]Part 3 - Volume Profiles: Expecting Uneven Terrain[/I]
We know so much about Bitcoin's landscape below the H&S neckline. Maybe someday you'll remember it as simpler times. But it's a fallacy. There are never simpler times, only familiar ones. For a long time under the neckline we knew nothing, but that didn't stop us from trading. Just because a landscape is new and unfamiliar doesn't mean we shouldn't move forward. Just update your map and don't fall off a cliff, this is all we can expect from ourselves as traders.
In this series of posts, I’ll be explaining our updated map of Bitcoin’s new landscape, layer by layer.
[I]Part 2 - Fibonacci Levels: Finding Natural Paths[/I]
Even irrational markets and their complex collective psychology have natural characteristics that remain consistent and predictable. If you find a slope in a forest, it probably leads to water, and if you're hopelessly lost, that water could lead you to civilization. With Fibonacci retracements, we can expect similar natural paths in Bitcoin’s $6,820 to $7,780 landscape.
On our chart, the black percentage levels are determined by our recent bearish swing from $10,000 to $7,750. The 23.6% sits just below our H&S neckline support. When the same support or resistance is identified using multiple methods, that price is strengthened, such as is the case with the 38.2% at $7,380. For a few days after the breakout, we struggled to close above this level. In our previous post, we identified this exact same price as a weak resistance by looking at historical prices. But now that we find the 38.2% here, the price is strengthened, so we should not consider it weak anymore. And after closing above it today, it’s now no longer a resistance. So we repaint the tree here as a blue non-weak support, giving it a similar strength as the $7,080 support. Our final relevant retracement in the short term is the 50%. Again, this is close to another level we identified using historical prices, the strong resistance at $7,780. Like natural landscapes, there are no coincidences in technical analysis, only consistent patterns that we can rely on to reach our destination.
Our map is becoming more reliable with each layer. But there’s even more detail in this landscape. Within our retracements are also major and minor Fibonacci extensions. These levels act as stepping stones to our targets. The dark gray percentages are our major extensions, determined by the H&S range from $5,750 to $6,820. The light gray percentages are our minor extensions, determined by the breakout range from $6,820 to $7,480. We can see that the H&S range extended to the maximum major extension of -61.8% on the day of the breakout, and found support at the major -41.4% the next day. From the minor extensions, determined by our breakout price range, we see that the breakout has still yet to extend itself. Instead, it has been consolidating in preparation to extend, which we can expect to reach at least to the minor -27.2%, or at most to the minor -61.8%. This last minor extension sits right at the 50% retracement we identified earlier, which we found to be close to the $7,780 strong resistance before that. Yet another sign that we’re on the right path.
With such a confluence of resistances in one area, we can conclude that $8,000 is unlikely in the short term. So let’s just follow our map and not be lead astray by asking for directions from other traders along the way. As much as we want to reach Bitcoin’s summit, we still have a few hills left to climb. In the next post we’ll map out these hills using the volume profiler.
[I]Part 3 - Volume Profiles: Expecting Uneven Terrain[/I]
Note
Here's a teaser for my next post using the volume profiler. If you're wondering what all the red and blue bands are on my chart with different opacities, they represent strong and weak volume. Red volume is resistance, blue volume is support, and opacity is the amount of volume. It's no coincidence that this snapshot of the 2H chart shows absolutely no candle close above the light red resistant volume zone. Many of the wicks stop exactly at the top of this zone. I highlighted this zone using the volume profiler 2 months ago, while we were still at $10,000, and I have never changed its coordinates since. This is the power of mapping the terrain on our map.
Note
For those looking for an update that covers our recent price movements, I have a timely new analysis up.
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