Bitcoin Is Close To A Massive Upside Breakout

Jul 17, 2020

Bitcoin has been consolidating for 80 days with a range low of around $8,000 and a range high of around $10,500.

In the last 35 days, it has stayed within a 5-6% range.

Bitcoin Volatility Index (BVOL)
In a historical context, the bitcoin volatility index is showing a massive move coming soon.


Each time we dip into this low volatility territory, a significant movement comes shortly therafter.

Let's take a look at some of the 'macro' factors that may give us an edge in determining which direction we may move.

HASH RIBBONS INDICATOR
First off, we recently got a Hash Ribbons Buy Signal. This buy signal has significant positive correlation with Bitcoin price rises after it happens.


The red zones are the best areas to accumulate Bitcoin during miner capitulation. (cost averaging for long term gains)

Bitmex Funding

Next, lets look at the funding inciator. This has long since been one of my favorite funding indicators to determine the next 'explosive' move with.

What this indicates is when longs or shorts are too heavily weighted by traders.

When there are overweighted longs, they pay a funding fee (positive) to shorts to keep their positions open.

The way that deriviates exchanges (bitmex, bybit, deribit) keep the perpetual contract XBTUSD tied to the price of the underlying spot price is with this funding indicator. As the price deviates too much, traders will be forced to close due to paying a significant premium on that sound.

Counter trading the masses has often been very profitable.

The current macro environment suggest that a significant amount of shorts are still in play from the macro break down as we have not seen any significant positive funding in quite some time.

That would make another downside break like we saw in march much more difficult.

The funding suggest that an upside break is more likely.

Liquidity for short sellers also suggest that they are the easier target as well. For that data, I used Hyblock Capital's liquidity graphs.


Open Interest
Currently, open interest has been steadily rising and is at one of the highest levels seen since the breakdown in March.

Open Interest Going up While Price Is Going Up Is Typically A Bullish Indicator.


Consolidation Triangle:
It can be argued that we are facing another downtrend traingle break similar to November 2018. The data would not suggest that based on the factors above, but the most NOTABLE aspect of the fractal that is being shared is the preceding trend.


The preceding trend in 2018 was a downtrend.

Consolidation triangles often follows the path of it's previous trend more often than not.

There are exceptions to the rules of course like we saw in September of 2019 when the Plus Token was openly dumping on the market and created a breakdown move as seen here.


In this case, the preceding trend is an uptrend, which gives us a higher probaility of breaking to the upside.

I see two possible scenario's playing out here.



Scenario #1:
We break out top side of this triangle on some sort of news or catalyst and it runs the short side liquidity and creates s significant short liquidation cascade as shorts buy back in to cover.

Scenario #2:
We see a break down from the consolidation / triangle to the $7700-$8000 level to run the last of the long liquidity below the 8k range low and retest the daily SR and the bullish engulfing breakout base.

We then consolidate for a day or two as breakout short sellers pile in for continuation as we then immediately reverse and head up to the 112K range high.

Is it possible that we cascade and break down similar to March? (Yes. It's quite possible.)

However, for all the reasons above, a higher probability trade is pointing to the upside.

The way you can trade this is a few ways.

Trade #1: Build a long position on support pending a breakout with a tight stop loss below $8800 support zone. (Higher Risk as this is a non-confirmed breakout)


Trade #2:
Wait for the breakout of the downtrend and buy the retest of the trendline.


This is a higher probability trade as you know that bulls/buyers are active and you're not waiting forever for the consolidation to end.

Trade #3:
Short to the downside around $8000 with a stop above $9400


Trade #4:
Long the $7800-$8100 zone back up to the range low and beyond if it gets enough momentum.


Make a plan and stick to it.

As for altcoins, I would be a bit cautious getting stuck in low sat / low volume altcoins due to the fact that a pump or dump on bitcoin usually spells disaster and trying to get out of them can prove to be difficult.

Bitcoin dominance is sitting near a support zone after breaking down to the 63% level.


Let me know what you think.

Jul 21, 2020

Comment

Solid breakout. Bulls need to maintain momentum and hold on above $9250 to put pressure on bears and continue the push. Above 4 hour 200EMA and trend looks very healthy for continued upside movement.

The drop also coincided perfectly with the dollar dropping and stocks rallying. Pay attention to the strength of the dollar to know when to get out of risk on assets.

Jul 28, 2020

Comment

Came within 2% of target. Upside momentum is expected.

$10,400-$10,500 range resistance turned support is now the buy zone.



Congratulations to the long traders!