Short Term Update: again congestion

XBT/USD is again in a congestion, i’ve already spoken many times about how to measure a congestion in previous udpates but remembering the Romans saying: repetita iuvant (repeating does good) i decided to repeat again the whole concept of price congestion.

Congestion occurs when four consecutive bars open or close within the range of a “measuring bar”. A “measuring bar” becomes such when its price range contains the opens or closes of at least three of four subsequent price bars. Price movement may be broken into three distinct and definable areas:

  1. Ledges – less than 10 price bars
  2. Congestions – 11-20 price bars
  3. Trading Ranges – 21 bars or more with a breakout usually occurring before the thirtieth bar

Now 20 days are gone without a breakout above or below the “measuring bar” (i consider the measuring bar the one of last 30 June) and we are in a congestion and close to become a trading range. The reported channel upper and lower price level is very similar to our measuring bar, from $595 to $640, I expect a breakout above or below these 2 levels within the next ten days because on average a congestion phase for this market never lasted more then thirty days.
I’d be very surprised to see the price still inside this trading range in August, IMO the odds are for a breakout above $640 considering the underlying trend which is pushing up.


Short Term Update

chartXBT/USD is slowly retracing back in the lower part of the price channel. This price channel is computed using a fitting function that highly smooth the data and the deviation lines are computed using the average true range, overall it is a bit different from the other approach used by me: VWAP and its deviation lines.
The color of the midpoint channel line represents the slope, white it means the tendency is flat, red and green for a bearish or bullish tendency.

I think that this market is now flat with a short term bearish tendency that should end with a new low at or above $575, any weakness below it and especially below the recent bottom at ~$550 would be bearish IMO.

Quick Update: Daily Chart

chartThere was not enough volatility to reach $ 530, XBT / USD stopped at $555, the middle level between 530 and 580 dollars (the midpoint of the price channel).

I believe that bitcoins will remain within these extremes of the price channel between 530 and 630 dollars with the nearest resistance located at about 610 dollars. The oscillator volumes is still negative and could become positive with a strong break of $ 630.

Long Term Update: Daily Chart

chartI think that this market is still in a phase of moderate correction, not severe at all. Support for this week is at $ 575, in case of break of that support this market could reach the bottom of the price channel that I have shown in the attached graph, at around $ 530 which is the price level of strong support that I indicated in my last tweet.

I include with this chart (btce prices using metatrader 4) a proprietary volume oscillator that i developed and it is very powerful in spotting trend reversal, at the moment it is bearish.

I say again that it is important to stay above $520 for the long term, any weakness below that price level would have bearish implications for the long term although I can accept a quick spike below that price level but  it must be temporary and not for a prolonged period of time.

Short Term Update: H2 chart

chartIn my last update I had suggested a decline in prices in the $520-$580 price zone and it duly happened:) why? Well sometimes i forget that this market is very sensible to news with a strong tendency to overreact.  It is enough a modest bearish news that the majority of the trading community lose control to their emotions and cannot make up their own minds, feel free to call it the sheep effect:)

As you can see in the attached two hours chart now XBT/USD is bearish in the short term with the weekly VWAP acting as resistance at about $600.
The target for the next week is to move again above VWAP to regain a bullish position, while an immediate further correction below $520 would be bad IMO with some bearish implication also for the long term trend.

To conclude, i expect a rebounce up to $600 for the next 72 hours.

Long Term Update: Daily chart

chartThe long-term outlook of XBT/USD is still positive and a move to $750 appears likely. However bitcoin entered again in a congestion phase, a short-term correction might develop from here with a drop to the support zone at $517-$592 price range.
I remain confident that a short term bottom should develop above $580.

RSI oscillator is giving a sell signal but it is not accompanied by high volume so i’ve decided to ignore it for the moment. The net volume is positive on the 3 day chart (not included here) and not yet indicating a strong sell activity.

Strong support for the mid-long term is the 2 months VWAP at $517 @bitfinex and $508 @bitstamp.

Quick Update: 2 hours chart

chartOver the past three weeks the market rallied and almost all of the indicators I follow rallied with it but it is not enough for me, i want to see XBT/USD going above the previous top of $710 and so far the last top has been done at $680.  A 10% correction happened but the short term VWAP (computed using last 7 days) is providing support, in case of a break i see the $550-$580 price zone as a strong one which should prevent any attempts from sellers to move this market further down.

Bitcoin should move up further from here considering that the RSI oscillator is now oversold and because the price is still above the VWAP i think that an healthy correction just ended, XBT/USD should go up towards its first important test: to break through the $710 february’s price top.

Long Term Update: 3 days chart

chartI’ve decided to buy after a strong breakout of the previous intemediate $548 top. I report here the 3 days chart with the up/down volume ratio finally bullish after more then five months of bearishness, I think this is a very bullish signal for the long term. It is pretty obvious that for a better confirmation we need to move above the $710 top of March ’14.

Looking again the one year VWAP and its deviation lines i think that the next important resistance area will be at $750 where probably sellers will show up again. Now XBT/USD is near the first positive deviation line but i think there is enough fuel to move above $600, in any case there could be a break of $50 from here down to $520-$530 where i’ll probably open a second trade averaging down my position.

Averaging down a position it is often considered a bad mistake but i’ve a different opinion. In books and information about trading all say the same things, that you should never averaging down a losing position, etc… Well they strongly emphasize that money management is a key aspect , they always tell you that it is dumb to average down, to always use stop losses, risk 3% of your account and so on,  it is something like a never ending recycling of bad ideas used by the retail traders that produces the illusion of certainty.

Because 95% of traders always fail you have no choice to do exactly the opposite to succeed ; under some circumstances, averaging down can help you to mitigate the uncertainty of market speculation and allow volatility to produce profits for you without the need to be a guru in divination.