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Author Topic: A more in-depth BTC/USD analysis...  (Read 3321 times)
ATC777
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February 04, 2013, 05:44:40 PM
 #1

As I'm planning to make some large purchases of BTC, I decided to perform an in-depth price analysis as I would before taking any significant position in any market. I come from a background in equities, futures and FOREX and I'm still learning the ins and outs of the Bitcoin exchange market and "Bitconomy", but technical analysis abstracts away most of the underlying fundamentals and allows a trader to focus on the market action / data itself. It amounts to a form of "mass psychology", allowing the analyst to make "forecasts" on asset prices. So what I've done here is spent a little time analyzing the BTC/USD rate and attempting to decipher the ebb and flow of the market from the charts and data. Some people swear by the technicals, and some hate it... But it's made me several small fortunes over the years, and that's enough for me.  Cool

Here we go... The overall picture I have of the BTC/USD rate is one with a very bullish long-term future; but due for a short-term correction. The resistance we have seen in the $22.00 neighborhood has proven much stronger than most would've thought, and there it seems that sell orders are stacking up. There are also a lot of traders on OTC trying to liquidate their holdings of several hundred BTC. I think we're simply over-extended at these levels, and need a healthy correction. Lots of speculative $ are stacked up in the BTC and trigger fingers are itchy... Let's look at the chart-work:

First we need to take a look at a 3-month chart, to get an idea of what's been happening over a wider time-frame:



It seems apparent we've been on a major tear, and the bulls haven't been able to keep running. That is one big divergence in our moving averages, and the MACD is indicating a big drop in momentum. I think it won't be long before we have a cross in the MACD and the rolling correction (if we get one) begins. As of right now we're merely hovering just beneath resistance and just above the EMA-14. Volume has sloped off as well. A little bit of selling pressure can trigger a much bigger move.

Now we'll take a look at what has happened in the last 10 days:



I have added numbers on this chart to comment on each thing...

1) The most troubling bearish signal I see here is the classic double-top pattern. This is a bearish pattern in which the market reaches a high point, falls back, attempts to reach a new high but fails -- followed by a correction or sell-off.

2) This shorter time-frame gives us a snapshot of MACD as it is approaching the signal line for a cross. Falling below the signal line typically indicates a high potential for downward momentum which will carry on for a while. There is also a growing negative divergence, which is evident by looking at the expanse of the histogram.

3) The #3 points to the tightest resistance line, found around $21.50. We have tested this resistance line twice, and have failed both times. This strongly suggests we're not ready to take out this conceptual barrier just yet -- we've already had a tremendous move.

4) Both of our exponential moving averages (EMAs) are beginning to take a negative attitude and are rapidly converging. We should watch for a cross in the EMA-14 and EMA-60 and interpret it as a signal the correction may be beginning.

5) Volume, volume, volume!!! Where has all the buying volume gone off to? I can tell you: people are feeling iffy about this current price level after this huge move up. This has a very bearish echo, in my opinion, as it suggests new buyers/speculators are not pumping the $ into BTC at this level. People (by which I mean regular users) are complaining about Bitcoins being "expensive" to buy, and that means a slowdown for Bitcoin sellers. A slowdown for sellers means less buy orders on the exchanges, and we all know what that means. They say "price is king", but volume can speak volumes.  Smiley

I'd like to say a few things to conclude my analysis and break-down... By looking at the EMA-60 on the 3mo chart (the first picture), we can estimate that support will fall around the $16 level. Prices tend to stick to longer-term moving averages in corrections, and that's the one I've got my eye on. I think it's best we take some profits here and now and let this thing cool off. It's not good to stretch too far too fast -- you create big bubbles that can bust a whole economy. So don't view a correction as a bad thing but rather a very good thing. It will give us all the opportunity to make an intelligent and thoughtful re-entry into the BTC market and enjoy the next leg-up. But keep in mind that technical analysis is NOT about "predicting" markets -- none of this is set in stone. Technical analysis is a never-ending quest to become a master of data and chart interpretation and make better risk management and trading decisions.

Personally, I'm planning to buy a large amount of BTC right away. But I'm actually going to transfer it all to my new MtGox and exchange accounts to sell and hold in the form of fiat, giving the correction some room to run. As the price falls I will be buying BTC in increments, in a pyramid-shaped fashion -- this "dollar cost averaging" will allow me to progressively improve my entry point into the market and actually lower my average unit cost. Of course, I'm also accumulating a lot of gold and silver. In dollar terms, gold and silver are a bargain -- and we have another round of QE underway. The good thing about holding gold and silver during a BTC/USD correction is I get a lot more bang for my buck when I sell my bullion and move back to cheaper BTC.  Cool

Regards,

--ATC--

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I'll start doing this on the regular and in a lot more depth/detail if people enjoy it.  Smiley

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February 04, 2013, 06:11:04 PM
 #2

I have thoroughly enjoyed this.  I am watching this topic.  Will consider future donation over what I see in the next few weeks.  Smiley

But my thanks are free and sincere.  Thank you.

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February 04, 2013, 06:18:15 PM
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Interesting analysis, thanks for sharing.
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February 04, 2013, 06:26:42 PM
 #4

I feel like the double-tip pattern might be a result of a self-manifesting "weekend dip", where people noticed that prices dipped around the weekend due to lack of fiat being converted on weekends or such, and now they are moving with that pattern.

If we touch $23 this week, and then Fall to $21 or so this weekend, I think that would prove this.

My theory and your analysis could both be on the right track at the same time though, which would make the correction more graded too...
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February 04, 2013, 06:36:55 PM
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It is also possible we will be consolidating at these levels...
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February 04, 2013, 06:43:09 PM
 #6

Welcome to speculation ATC and thanks for sharing.

I think that while you are correct that a double top could be forming, I am not so sure it will succeed. With bitcoin one of the most important factors to consider is the weekend dip (a result of the fact that the exchanges are open 24/7. but the banks are not). Another thing to consider about Bitcoin is that it doesnt tend to dip in the same way that forex or other markets do. If we are in a long term bull trend, the price tends to hover around one target and not move up (rather than retrace down before continuing up).

I think the chances are greater that we continue at this level for some time (similar to what happened at 13) and then continue the trend back up again.

Bro, do you even blockchain?
-E Voorhees
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February 04, 2013, 06:49:59 PM
 #7

Thanks for sharing ATC

Beware that the fundamentals for bitcoin are unusual.

The block reward halved at the end of Nov-2012 so some of the recent price increase could be a delayed effect of halved supply.
The number of users is exponentially increasing...
https://blockchain.info/charts/my-wallet-n-users
doesn't this look like the price chart?

Buying bitcoin in 2013 could be compared to buying Microsoft shares in 1988. Sensible at any 1988 price...

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February 04, 2013, 06:55:36 PM
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This big $21 ask wall is certainly going to stall things too...
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February 04, 2013, 06:59:59 PM
 #9

https://blockchain.info/charts/miners-operating-profit-margin

The miners are back to their comfort zone.
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February 05, 2013, 12:48:55 AM
 #10

Personally, I'm planning to buy a large amount of BTC right away. But I'm actually going to transfer it all to my new MtGox and exchange accounts to sell and hold in the form of fiat,

I'm a little confused why you'ld do that.  Doesn't that cause you to incur exchange fees three times?  Buying, selling and then eventual re-buy?  Why not transfer fiat and just pay exchange fees once?

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February 05, 2013, 01:26:47 AM
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Personally, I'm planning to buy a large amount of BTC right away. But I'm actually going to transfer it all to my new MtGox and exchange accounts to sell and hold in the form of fiat,

I'm a little confused why you'ld do that.  Doesn't that cause you to incur exchange fees three times?  Buying, selling and then eventual re-buy?  Why not transfer fiat and just pay exchange fees once?

How do you transfer fiat to MtGox and other exchanges without paying more than the exchange fee?

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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ATC777
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February 05, 2013, 05:29:42 PM
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Welcome to speculation ATC and thanks for sharing.

I think that while you are correct that a double top could be forming, I am not so sure it will succeed. With bitcoin one of the most important factors to consider is the weekend dip (a result of the fact that the exchanges are open 24/7. but the banks are not). Another thing to consider about Bitcoin is that it doesnt tend to dip in the same way that forex or other markets do. If we are in a long term bull trend, the price tends to hover around one target and not move up (rather than retrace down before continuing up).

I think the chances are greater that we continue at this level for some time (similar to what happened at 13) and then continue the trend back up again.

You bring up a valid point. If the market stays flat-calm here at these levels for a week or two I would interpret that as an indication that the rally has legs and these prices will stick. Would indeed be a very bullish sign. Likewise, I think a decent correction is a healthy thing and I will be buying BTC like crazy in any dips.

Regards,

--ATC--

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February 05, 2013, 05:31:56 PM
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Good analysis. Thank's.

ATC777
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February 06, 2013, 08:52:40 PM
 #14

Prices hovering just below the 1-year high of $21.43/BTC. I'm watching this with my undivided attention and interest.  Grin

What happens here at this key technical level will give us a hint as to longer-term future of the BTC/USD rate. I really, really want to see a mild and orderly correction here to allow for a healthy re-balancing of all the money in the Bitconomy. In every market money can only flow in one direction for so long before it's time for some profits to be taken and liquidation and moving-around of funds. Too much money moving in one direction means too much speculative capital stacking up in one place, and holds the market hostage with mass liquidations... too much volatility is, imo, counter-productive for a currency. And we want Bitcoin to grow from new adopters and users, rather than speculative money (though speculation is a valuable slice of the pie).

So watch that $21.43 level. If we fail to take it out, I would prepare for a decent correction and be an enthusiastic buyer near the $17-$16 range (if we get there). There is always the possibility that we catch another big gust in our sails and break out again, but I think continuing to run too far without a rest is a bad thing.

Regards,

--ATC--

Epic Coinage -- Gold, Silver, Bitcoin, Exchange, Apparel, Electronics and more!

Check the official trade thread for full list of products and services!

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February 06, 2013, 09:08:35 PM
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chriswilmer
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February 07, 2013, 12:36:12 AM
 #16

Thanks for sharing ATC

Beware that the fundamentals for bitcoin are unusual.

The block reward halved at the end of Nov-2012 so some of the recent price increase could be a delayed effect of halved supply.
The number of users is exponentially increasing...
https://blockchain.info/charts/my-wallet-n-users
doesn't this look like the price chart?

Buying bitcoin in 2013 could be compared to buying Microsoft shares in 1988. Sensible at any 1988 price...

+1
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February 07, 2013, 01:25:28 AM
 #17

Quote
Where has all the buying volume gone off to? I can tell you:
No you can't cause you can't see the off exchange volume.

Quote
People (by which I mean regular users) are complaining about Bitcoins being "expensive" to buy, and that means a slowdown for Bitcoin sellers.
Anyone who values something by its nominal price doesn't have enough funds to move the market anywhere.  It would be like saying Apple stock is expensive but if Apple did a 100:1 split it would be an amazing buy.  If people say BTC is too expensive try selling them some mBTC.  mBTC are going for the low price of ~$0.20 per mBTC.  They just need to switch their client to mBTC mode in the dropdown to get in on this better value coin.

Quote
There are also a lot of traders on OTC trying to liquidate their holdings of several hundred BTC.
Hundreds of BTC ... now that is some large action.  If they can't move those coins tell them to contact me.  I need some regulars looking to unload 10K-20K a week and I then I might be able to meet demand without outages.  Probably not smart to mix whiskey with posting but if you aren't thinking on the scale of buyers who can pickup ten thousand coins a week, every week nonstop since June, well you are thinking way too small. Hint: it is happening everyday.  Coins moving from people looking for a quick payday to those making strategic acquisitions.


BTW no insult intended your technical chart and other metrics look about as good as anyone else's I just thought the above quotes were interesting given my somewhat unique view of off-exchange activity.  Also none of this should be taken as a sign the market can't go down.  The market goes where it wants to go and I don't trade just arbitrage.
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February 07, 2013, 01:33:58 AM
 #18

On a similiar note I think people who use BitInstant don't really care about the price as much as online traders.  They are going to a store, picking up a phone, ordering a money gram or whatever and get their bitcoins.  Most of them will not say, "I am going to wait an hour to see if prices drop."  No.  They are at a store and they want their bitcoins.

Supposedly, BitInstant is doing $100K+ a day.
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February 07, 2013, 02:13:46 AM
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Supposedly, BitInstant is doing $100K+ a day.

source?
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February 07, 2013, 02:19:39 AM
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Supposedly, BitInstant is doing $100K+ a day.

source?

yeah i highly doubt it. thats nearly all of the average volume on gox

Bro, do you even blockchain?
-E Voorhees
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