BTC - Breakdown of Market Participants & Structure 1#
So I thought I would put some thoughts together breaking down how I am looking at the Macro View of BTC at present, as there is a lot of negativity in the space right now and on CT (Crypto Twitter ). A good way to clear you head from the noise is to step back and look at the chart on the macro level (see the forests from the trees).
For simplicity, this analysis will look at naked price action and market structure only. From this analysis, we can discuss where money that is biased by these principals may look to re-enter the market. NOTE: I would advise you look for confluence with other tools such as indicators and moving averages when making market decisions (happy to discuss these in future posts in this series if people want – let me know in the comments below). Please consider this analysis for education and entertainment purposes only (not financial advice).
First let’s discuss the doodles & squiggles I have drawn and why they have been included in this chart.
FIBONACCI RETRACEMENT
Firstly, let’s look at the horizontal thin black and gold lines on the chart. This is a tool called the Fibonacci (Fib) Retracement tool, and the levels are based on the Fibonacci sequence which is a numerical sequence of numbers found in patterns in nature that are repeated almost everywhere. The numbers (and corresponding price levels are drawn in brackets on the far right of the chart). I have drawn our Macro fib from the COVID 2020 March bottom to our new ATH at ~$69K (see blue arrows). Looking at these fib levels, we can see these have provided respected price levels of support and resistance . For example the 0.786 level held support when we were mucking about trying to break the prior ATH of ~$20K in November / December 2021, 0.5 level currently as well as many points through the mess in the specified Supply / Demand zone (red and green horizontal rectangles) trading range and the 0.382 & 0.236 fib levels through the start and end period of 2021.
It is important to note that we are showing respect to these levels on the way down in our current down trend which means there is money in the game that is giving conviction to this Technical Analysis Tool. I would expect we lose the current 0.5 fib level we are currently respecting at the time of writing over the next few days if we don’t see any volume come in at the current levels. Most fib traders are looking for the 'Golden Pocket' for re-entry positions ( gold lines in the tool). Fib traders who have money / profits that are sitting on the side lines, generally look to take exposure again at the 0.618 - 0.65 levels (or a 61.8% to 65% retrenchment in price for those that like to think in percentages). This range and all fib levels is significant in nature and similar patterns are shown in social behaviour (I recommend you do some self-teaching if you are not over this - there is plenty of good free resources on this topic out there and is an interesting read). I like to think of the Golden Pocket range as the area of 'Max Pain' for 'underwater traders' and often forms good areas of liquidity for Fib Traders to attack with low slippages on exchanges on re-entry. The Golden Pocket fib levels range between the bottom of the green demand zone and the top of a daily Order Block (OB) (blue rectangle in the image), showing some confluence for support in this region. I may do a post in this series on how I view Order Blocks if people are interested - let me know in the comments below. A respected Macro Fib retracement means there is conviction at the macro level in looking for confluence with support at the 'Golden Pocket' range.
TRADING RANGE ( SUPPLY & DEMAND ZONE)
Simple rules of trading ranges are; once you reach the top, assume we are going back to the bottom unless proven otherwise (i.e. a break of the upper levels of the trading range) and visa versa. While the trading range (ranging between ~$42K and ~$29K) I have drawn is traditionally not how you would specify a trading range, the Demand and Supply zones drawn on this chart have shown clear indication of price level support and resistance through 2021 (the top and bottom definition of a trading range) and has been a zone where BTC has enjoyed returning to for some re-accumulation of positions / exposure. A strong indication of supply and demand is evident from the large 'wicks' on the highs and lows of candles (noting we are viewing the chart on the daily time frame). Where these wicks align at price levels, we can deduce that there are confluence between net buyers and sellers targeting these prices to gain exposure / close positions respectively, forming this idea of a trading range. This price behaviour generally dictates price moments until it no longer does. As discipline traders, we identify these patterns and use the top and bottom levels as "if this, then that" decision events. We can see the specified trading range between the top Red Supply Zone (Selling Pressure) and below Green Demand Zone (Buying Pressure) horizontal rectangle ; starting with our first major trouble with our parabolic uptrend at the start of 2021. This zone or trading range was respected with the 'Chinese BTC Mining Exodus" dump and established local bottom through the blood red month of May and Jun / July 2021 period; and we have just regained this region again in our current ~85 day down trend from our ATH . As discussed above, re-entering the trading range, we assume we are visiting the low of the range before reversing. As we did not reach the top of the trading range on the relief rally from the weekly OB (there were a number of tell-tale confluences suggesting this would not be the case) and rejected at the red arrow at the red point 3. This bearish price action further strengthens to a trading range trader that we are visiting the lower level of the trading ranges. NOTE: again as with all trading ranges, we visit the top, then the bottom, then the top etc of the range until we don't. Based on this analysis alone we could be 'playing in the sand box' so to speak within this range for a while.
PARABOLIC TREND LINES
Drawn on the chart is a thick Red line (drawn using touch points during September 2020 before our parabolic uptrend which align with our liquidity grab market trend reversal 'dippy dip' at the end of July 2021) and a Green trend line (drawn using the same point to start our fib retracement levels discussed above (i.e bottom of March COVID Crash) and different touch points during September 2020 before our parabolic uptrend). These are called parabolic uptrend lines because if you keep drawing these on our start of 2021 parabolic uptrend run, these lines resemble the tangential linear direction of the parabolic curve from that point of the curve. They are useful as when we break key support line, they indicate a fundamental breakdown of current market structure. A good demonstrator of this is shown by the Blue line, which once we broke (while we did attempt to regain this line) indicated fundamental structural issues with the sustainability of price levels and resulted in a 'Flush' of the prior months price action. The Red trend line below, we expected the price to intersect with the ~$40K region. This trend line showed confluence with the top of our trading range. We initially bounced as expected off these levels. Traders who would have put their stop losses below the end of September 2021 bounce (which was the confirmation point for many traders of a higher low and confirmed the uptrend to the underwhelming new ATH of $69K), created a liquidity pool for Whales to target. The expected liquidity zone also suggested this price level would be a good area to look for a recovery of trend to the up-side. However as shown by the lack of low volume , this turned out to be a ‘bounce for ants’ and we eventually broke down from this trend line . I expect this trend line to form resistance on a potential bounce to the current trend if that does in happen and we interact with the line from below (hence why I have marked this as Red).
The Green trend line below is our next parabolic line of interest (and potentially our last). While this does not align with our trading range where one would expect it may first intercept with price with our current trajectory, it could form support in the act of a large liquidity grab / capitulation event which wicks on the daily chart below the demand zone and quickly re-enters the trading range. I believe this may be needed to reverse the current bearish trend in BTC and is often associated with reversals and breakout of a trading range. Traders will often refer to this as a fake out. For similar reasons above, this line signifies points of interest we should pay attention to when and if price meet / intersects this line.
LONG TERM TREND LINES
The Black downward directing diagonal trend lines dictating the highs and lows of our current trend clearly show the current intra-cycle price direction is bearish and will continue until these lines are broken. It is noted we have traded in this pattern now downward without any considerable relief rallies for 85 days. This is unusual, and will need a failed decent relief rally if prices are to fall down at our current rate to the extreme lows called for in CT. Relief rallies are needed for healthy continuation of trend direction (both up and down) as they allow traders to take profits on the way up or on the way down from long and short positions, and provide clean retry points to continue the trend. The fact we have traded in these trend lines for so long to be is an indication of how over sold we currently are and suggests we should be looking for confluence with other indicators to support this thesis. These line are pretty self-explanatory, however when we break them they are the first sign of repair. The 'story' of these lines are some what explained through the above and shown with the orange and red arrows at point 1,2 and 3 respectively. I would detail these points, but as this post is already lengthy I think from the above you can work out what is happen here and why they are / were significant and strong supporting signals for traders to respect and expect the continuation of the current bearish trend. If and when we break and confirm these trend lines (hopefully to the upside), we then need to work out if we are getting a to failed relief rally or a change of trend by locking in a higher low and a higher high and start to see resistance levels flip into support.
GREEN BOX - POINT OF CONFLUENCE
While the above by all means does not guarantee price will drop to this level and if and when it does will not mean we will get a reversal of trend. In Crypto, anything can happen and the above should all be taken as dubious speculation (after all it is all just doodles on a chart haha). However as with anything in life when trying to work out the whys and how's and the mysteries of human behaviour, it is prudent to follow the money (as money incentivises behaviour and effort); and when it comes to BTC , the money comes from the market participants; and the portion that influences their decision in this market on the above concepts (Traders and possibly the Whales) will be looking at these price areas; and as they often make up the majority of trading at critical pivot points in the market, it is worth understanding what could be important to these market participants when price reaches these levels.
That being said, the confluence on the above concepts is why the indicated 'Green Box' is where it is and if we range down to this level then based on price action analysis alone, this would be a point of interest to expect a bounce and review to see if we have enough volume to start a trend reversal. Confluence with other TA such as indicators I would advise using which if people wish I might do a post in this series (let me know in the comments below).
For context with what has been drawn on the chart; if we have not reached our market top ATH this cycle (as measured from the halving), then a visit to the Green Box and down to the Green line would be the worst case outcome I would be expecting. To remain bullish from this point we want to see strong volume and a wicks only below the Demand zone (any substantial trading below the demand zone would require caution. If we break the green line to the down side, I think it is very possible we have made our ATH (All Time High) this cycle at ~69K (barely a ~3.5X from the last cycles ATH at ~$20K). Based on Market structure and Price action alone; there is very little support below the Demand zone , and if we break it and confirm then the low 20s and then low teens would follow.
I hope the above was useful / insightful and hopefully an interring read. Please comment your throughs below – these posts are intended to promote positive discussions in our space.
For simplicity, this analysis will look at naked price action and market structure only. From this analysis, we can discuss where money that is biased by these principals may look to re-enter the market. NOTE: I would advise you look for confluence with other tools such as indicators and moving averages when making market decisions (happy to discuss these in future posts in this series if people want – let me know in the comments below). Please consider this analysis for education and entertainment purposes only (not financial advice).
First let’s discuss the doodles & squiggles I have drawn and why they have been included in this chart.
FIBONACCI RETRACEMENT
Firstly, let’s look at the horizontal thin black and gold lines on the chart. This is a tool called the Fibonacci (Fib) Retracement tool, and the levels are based on the Fibonacci sequence which is a numerical sequence of numbers found in patterns in nature that are repeated almost everywhere. The numbers (and corresponding price levels are drawn in brackets on the far right of the chart). I have drawn our Macro fib from the COVID 2020 March bottom to our new ATH at ~$69K (see blue arrows). Looking at these fib levels, we can see these have provided respected price levels of support and resistance . For example the 0.786 level held support when we were mucking about trying to break the prior ATH of ~$20K in November / December 2021, 0.5 level currently as well as many points through the mess in the specified Supply / Demand zone (red and green horizontal rectangles) trading range and the 0.382 & 0.236 fib levels through the start and end period of 2021.
It is important to note that we are showing respect to these levels on the way down in our current down trend which means there is money in the game that is giving conviction to this Technical Analysis Tool. I would expect we lose the current 0.5 fib level we are currently respecting at the time of writing over the next few days if we don’t see any volume come in at the current levels. Most fib traders are looking for the 'Golden Pocket' for re-entry positions ( gold lines in the tool). Fib traders who have money / profits that are sitting on the side lines, generally look to take exposure again at the 0.618 - 0.65 levels (or a 61.8% to 65% retrenchment in price for those that like to think in percentages). This range and all fib levels is significant in nature and similar patterns are shown in social behaviour (I recommend you do some self-teaching if you are not over this - there is plenty of good free resources on this topic out there and is an interesting read). I like to think of the Golden Pocket range as the area of 'Max Pain' for 'underwater traders' and often forms good areas of liquidity for Fib Traders to attack with low slippages on exchanges on re-entry. The Golden Pocket fib levels range between the bottom of the green demand zone and the top of a daily Order Block (OB) (blue rectangle in the image), showing some confluence for support in this region. I may do a post in this series on how I view Order Blocks if people are interested - let me know in the comments below. A respected Macro Fib retracement means there is conviction at the macro level in looking for confluence with support at the 'Golden Pocket' range.
TRADING RANGE ( SUPPLY & DEMAND ZONE)
Simple rules of trading ranges are; once you reach the top, assume we are going back to the bottom unless proven otherwise (i.e. a break of the upper levels of the trading range) and visa versa. While the trading range (ranging between ~$42K and ~$29K) I have drawn is traditionally not how you would specify a trading range, the Demand and Supply zones drawn on this chart have shown clear indication of price level support and resistance through 2021 (the top and bottom definition of a trading range) and has been a zone where BTC has enjoyed returning to for some re-accumulation of positions / exposure. A strong indication of supply and demand is evident from the large 'wicks' on the highs and lows of candles (noting we are viewing the chart on the daily time frame). Where these wicks align at price levels, we can deduce that there are confluence between net buyers and sellers targeting these prices to gain exposure / close positions respectively, forming this idea of a trading range. This price behaviour generally dictates price moments until it no longer does. As discipline traders, we identify these patterns and use the top and bottom levels as "if this, then that" decision events. We can see the specified trading range between the top Red Supply Zone (Selling Pressure) and below Green Demand Zone (Buying Pressure) horizontal rectangle ; starting with our first major trouble with our parabolic uptrend at the start of 2021. This zone or trading range was respected with the 'Chinese BTC Mining Exodus" dump and established local bottom through the blood red month of May and Jun / July 2021 period; and we have just regained this region again in our current ~85 day down trend from our ATH . As discussed above, re-entering the trading range, we assume we are visiting the low of the range before reversing. As we did not reach the top of the trading range on the relief rally from the weekly OB (there were a number of tell-tale confluences suggesting this would not be the case) and rejected at the red arrow at the red point 3. This bearish price action further strengthens to a trading range trader that we are visiting the lower level of the trading ranges. NOTE: again as with all trading ranges, we visit the top, then the bottom, then the top etc of the range until we don't. Based on this analysis alone we could be 'playing in the sand box' so to speak within this range for a while.
PARABOLIC TREND LINES
Drawn on the chart is a thick Red line (drawn using touch points during September 2020 before our parabolic uptrend which align with our liquidity grab market trend reversal 'dippy dip' at the end of July 2021) and a Green trend line (drawn using the same point to start our fib retracement levels discussed above (i.e bottom of March COVID Crash) and different touch points during September 2020 before our parabolic uptrend). These are called parabolic uptrend lines because if you keep drawing these on our start of 2021 parabolic uptrend run, these lines resemble the tangential linear direction of the parabolic curve from that point of the curve. They are useful as when we break key support line, they indicate a fundamental breakdown of current market structure. A good demonstrator of this is shown by the Blue line, which once we broke (while we did attempt to regain this line) indicated fundamental structural issues with the sustainability of price levels and resulted in a 'Flush' of the prior months price action. The Red trend line below, we expected the price to intersect with the ~$40K region. This trend line showed confluence with the top of our trading range. We initially bounced as expected off these levels. Traders who would have put their stop losses below the end of September 2021 bounce (which was the confirmation point for many traders of a higher low and confirmed the uptrend to the underwhelming new ATH of $69K), created a liquidity pool for Whales to target. The expected liquidity zone also suggested this price level would be a good area to look for a recovery of trend to the up-side. However as shown by the lack of low volume , this turned out to be a ‘bounce for ants’ and we eventually broke down from this trend line . I expect this trend line to form resistance on a potential bounce to the current trend if that does in happen and we interact with the line from below (hence why I have marked this as Red).
The Green trend line below is our next parabolic line of interest (and potentially our last). While this does not align with our trading range where one would expect it may first intercept with price with our current trajectory, it could form support in the act of a large liquidity grab / capitulation event which wicks on the daily chart below the demand zone and quickly re-enters the trading range. I believe this may be needed to reverse the current bearish trend in BTC and is often associated with reversals and breakout of a trading range. Traders will often refer to this as a fake out. For similar reasons above, this line signifies points of interest we should pay attention to when and if price meet / intersects this line.
LONG TERM TREND LINES
The Black downward directing diagonal trend lines dictating the highs and lows of our current trend clearly show the current intra-cycle price direction is bearish and will continue until these lines are broken. It is noted we have traded in this pattern now downward without any considerable relief rallies for 85 days. This is unusual, and will need a failed decent relief rally if prices are to fall down at our current rate to the extreme lows called for in CT. Relief rallies are needed for healthy continuation of trend direction (both up and down) as they allow traders to take profits on the way up or on the way down from long and short positions, and provide clean retry points to continue the trend. The fact we have traded in these trend lines for so long to be is an indication of how over sold we currently are and suggests we should be looking for confluence with other indicators to support this thesis. These line are pretty self-explanatory, however when we break them they are the first sign of repair. The 'story' of these lines are some what explained through the above and shown with the orange and red arrows at point 1,2 and 3 respectively. I would detail these points, but as this post is already lengthy I think from the above you can work out what is happen here and why they are / were significant and strong supporting signals for traders to respect and expect the continuation of the current bearish trend. If and when we break and confirm these trend lines (hopefully to the upside), we then need to work out if we are getting a to failed relief rally or a change of trend by locking in a higher low and a higher high and start to see resistance levels flip into support.
GREEN BOX - POINT OF CONFLUENCE
While the above by all means does not guarantee price will drop to this level and if and when it does will not mean we will get a reversal of trend. In Crypto, anything can happen and the above should all be taken as dubious speculation (after all it is all just doodles on a chart haha). However as with anything in life when trying to work out the whys and how's and the mysteries of human behaviour, it is prudent to follow the money (as money incentivises behaviour and effort); and when it comes to BTC , the money comes from the market participants; and the portion that influences their decision in this market on the above concepts (Traders and possibly the Whales) will be looking at these price areas; and as they often make up the majority of trading at critical pivot points in the market, it is worth understanding what could be important to these market participants when price reaches these levels.
That being said, the confluence on the above concepts is why the indicated 'Green Box' is where it is and if we range down to this level then based on price action analysis alone, this would be a point of interest to expect a bounce and review to see if we have enough volume to start a trend reversal. Confluence with other TA such as indicators I would advise using which if people wish I might do a post in this series (let me know in the comments below).
For context with what has been drawn on the chart; if we have not reached our market top ATH this cycle (as measured from the halving), then a visit to the Green Box and down to the Green line would be the worst case outcome I would be expecting. To remain bullish from this point we want to see strong volume and a wicks only below the Demand zone (any substantial trading below the demand zone would require caution. If we break the green line to the down side, I think it is very possible we have made our ATH (All Time High) this cycle at ~69K (barely a ~3.5X from the last cycles ATH at ~$20K). Based on Market structure and Price action alone; there is very little support below the Demand zone , and if we break it and confirm then the low 20s and then low teens would follow.
I hope the above was useful / insightful and hopefully an interring read. Please comment your throughs below – these posts are intended to promote positive discussions in our space.
