BTC: Aftermath of the Drop - Market Psychology & TA

29 พ.ย. 2020

Hello Traders. Here I would like to revisit the "big" drop we encountered after we witnessed near ATH levels. Now that we have some more data to play with, what kind of information can we pull from these levels? We have to understand this from two perspectives:

1. Market Psychology Analysis
2. Technical Analysis (Realistic)

Market Psychology:
We are now sandwiched between two possible supply zones - both for bears and bulls. We are still currently overbought on the NVT indicator, EVEN after that 16% drop, which can mean that we have bulls and bears who are still wanting to profit on the current bounce. I believe that we are in store for more consolidation while supply eventually outpaces the other one on either side. This means that breaking 19-20K levels within the next few weeks (although not impossible), is highly unlikely due to the possible supple zone as indicated in the chart above. One drawback of this theory is that Bitcoin has shown in history that it can stay in overbought territories for a long period of time.

But let's take a moment and dissect what we can and cannot compare from the 2018 drop and the present drop. First, we are in a completely different era of trading. Bitcoin has essentially brought in a slew of new interest into technical analysis where self-fulfilling theories has developed over the past 2 years. For example, Fibonacci retracement levels is almost a staple within the trading arena. Everyone will react to a certain level, and the more that it reacts, the more the self-fulfilling prophecy becomes truer.

We are also now smarter than ever when it comes to predicting the prices of Bitcoin. The market consistently tries to find new ways to outpace the market. We are much smarter than the year 2018 due to the introduction of leveraged markets. Leveraged markets gave us the ability to short the market, where as in 2018 - never existed.

Technicals:

1. NVT Indicator is currently still overbought even with the 16% drop. The drawback for this as mentioned above is that Bitcoin can stay in overbought territories for long periods of time.

2. We have dropped below the EMA ribbon on the 1H, 3H, and now retesting the bottom of the ribbon on the 4H.

3. We are now retesting the newly created 618 fib level.

If you are interested in learning how to enter with proper risk reward management, make sure to check out my previous post:

Trade Safe.
X Force