Well, after a long summer and an especially dreary September, Bitcoin is making headlines again by edging up to $66,999.00. As we closed out the summer, we identified a macrotrend and speculated that when BTC broke out of the arc, it would make a major move. Here is what played out:
On the 1D, we can see right away that BTC broke out of the arc and then made two serious pushes to the upside. The first move took us from $29k to $53k before a retrace down to $40k and a subsequent rally to $67k. Where is it going next?
We know that markets generally behave in cycles and that these cycles are most commonly expressed in moves that come in three to five legs. Therefore, we should expect a third push to the upside after a period of consolidation. The trick to scalping the next rally will be in identifying the bottom of the retrace and confirming the resumption of the uptrend. Let's zoom in on the 1D:
Using Fibonacci, we see that the .236 line is right at ~$60,500 and we see an immediate bounce off that zone. It's almost as if the market makers know that traders are watching the Fibonacci lines... after all, what better way to set up a stop loss hunt and liquidate some longs?
Better yet, let's look in the zone that the most recent vector candle covered: $57,300-$61,750. We've learned that Bitcoin almost always retraces through its vector candles and this makes perfect sense. Why? The market is absorbing liquidity in these zones. Market makers make their money on the spread and fees. The vector candles show us where a great deal of liquidity is found. In times like these, we should all take a step back and marvel at the job the market makers are doing - they are playing tricks on us right in plain sight!
Check it out:
And what do we know about how retraces or correction waves work?
While it's not financial advice, savvy investors are likely going to set up their bids in that Vector Candle zone. In terms of making an entry, let's zoom down to the 1H time frame:
And what do you know!? Price is breaking back down into the vector candle zone. I've included the MACD on the 1H chart. As you can see, we are ending a push to the upside and the divergence indicates a further breakdown as does the recent decline in volume. Folks are waiting to see where price will fall. We are going to look for support at the .236 Fib (~$60,500) once price break down below the support it's currently finding between $61,800 and $62,500. We expect resistance around $63,700 and $67,000.
Circling back to Vector candles on the chart for a moment. Check out the vector candle BTC printed on October 22:
Notice how the market recovered the entire vector candle and also how the market has been playing in that price range? They are absorbing the liquidity in that zone. Now you know when you see those big bloody red vector candles that you can expect the market to recover that zone at some point. In this example, the market reacted quickly, absorbing liquidity in that zone just three days after the drop.
BTC RSI on the 1D is 61.43 but only 40 on the 1H. And price is currently pinning the 200 EMA on the 1H. It's a pretty decent setup with the confluence of the moving averages... and price just below the 50 but above the 200... happy trading!
