Often overlooked by many that are focused on shorter term time frames is proportionality, volatility and market cycles. A couple weeks ago we were telling our members to trim out some inventory and prepare for a pullback. How long and deep the pullback was going to be was a guess, but we wanted to sell something into strength.
Once we saw evidence the market was ending this fractal bullish cycle, we trimmed some more, not necessarily because we are bearish, we are not, but because it is critical to get into a habit of selling into strength and buying into weakness.
Regardless of the many fortune tellers out there that claim to have some holy grail indicator, there simply is no such thing. How far we pullback here or if we do pullback further is simply a guess. However we can use evidence via price action (volatility) and proportionality, along with support and resistance levels to provide some perspective as to where we are in the cycle.
First it is important to define a cycle based on time frame and proportionality. Though many considered the consolidation a "bear market", in my opinion this is nothing more than a consolidation in a broader bullish cycle.
On the weekly chart we have what appears to be a clear higher low, but is it really? This is where many omit proportional swings and look for confirmation bias that fits the narrative.
I could also look at this chart and say "it's a broader lower high", and this would be a fair point. After all this previous consolidation was a pretty broad consolidation which is somewhat proportional to the broader correction we had back in 2018. Fair enough. So how do we know for sure?
Well to be honest we really do not know. We are simply making assumptions based on the environment, proportionality and market cycles. What I do not like about the previous consolidation was the time frame. We were looking for a few weeks to a couple months, and it played out for over 6.
Let's zoom out and look at the broader structure:
This does not fit the criteria of a very broad cycle as those took over a year to play out. Does not really fit the criteria of the previous sub or fractal cycles as they were only 2-3 months which is why we thought this one would last about the same. It is kinda in between. So what does this imply?
Well for one the market has matured a lot since even 2017 with institutional investors and larger players becoming more involved. No need to argue, Grayscale's Bitcoin Trust (GBTC) acknowledged that 2019 saw an influx of institutional money and really how many of those on TV are trading CME or BAAKT futures?
Not to mention Bitcoin futures trading on the CME hit $1 Billion and has been consistently increasing since December. Yeah a market that is dead for sure. Keep on drinking the Kool-Aid Bitcoin perma bear!
So back to the proportional aspects of the chart. This is likely the first leg of a broader swing higher. But how do we know whether it really is or not? This goes to whether this is a higher low or actually a lower high.
The key level here that confirms a higher high is taking out the 16,000 on this time frame. From 14k-16k we consider this a fake-out zone where a failed high could play out. So for us to confirm this is a higher low in the broader structure, we need to see 16k taken out.
The key level here to confirm a lower low is 4500. I know it sounds like it is really low, but keep in mind the market pulled back off 14k 8000pts to 6400 area. From a proportional perspective 2k is our subjective view of the room needed to confirm one or the other.
Of course this is in the mid term, not the broader term. For a broader higher high the 24k level must be taken out, and from a broader lower low the 2500 level needs to be taken out. Getting ahead of ourselves here but it puts some perspective to the overall market cycle and proportional levels of interest.
This just provides some insight as to proportional levels of interest based on the broader perspective. There is another level which holds a lot of weight and that is the 6000 level. Taking this level out would be a red flag for bulls.
We mentioned this level prior to the market hitting the 6400 level and swinging higher, so this is not a new level. Came close, but close does not count. This is still a key level of support that we do not want to see taken out.
So what about lately?
As we mentioned to our members last week, watch for the resistance level between 10,150 and 10,400 which could result in a bull trap. A lot of bullish sentiment still in the market, but this was an area to take some profits from lower levels as we did.
The trend line has been taken out which implies this is the end of a fractal cycle. When two or three cycles on different time frames overlap, the consolidation or correction can play out over a longer period of time. We explained to our members why this happens based on the variety of trading and investing strategies that makeup a market.
We are also seeing a pickup in volatility which is also a sign of the end of a cycle. Note the large daily swings as compared to previous consolidations in the prior bull run.
Based on the proportional correction we had after the initial swing higher last year, it not be surprising to see a multi week consolidation before the next move. Maybe it is only a few days, but we would expect and should prepare for another week or two of volatility.
Yes volatility does matter here. Look at the price swing vs other corrections. Much more volatile which is also a sign that this is the end of an interim cycle. Now I did not use Elliott Wave cycles purposely because I do not want to distract from the message. Identifying cycles and most importantly the end of one.
When cycles end, especially in the perspective of a time frame you are trading (we swing trade so we are looking at the daily) many traders give back the money simply over trading in a correction. In addition when looking at trades in a correction they often do not make sense from a Reward to Risk standpoint.
We mentioned to our members Friday that there was a long trade setup but the R:R did not make sense, especially after the outside candle formed making 10k a minor level or resistance. I put this into context using my favorite past time, poker.
Imagine getting dealt 8-9 suited, and someone 3 bets and everyone folds but you. Do you call heads up vs what is likely a stronger hand? No because the probabilities are such that the Reward does not match the Risk. You are getting less than 50% on likely two over cards and potentially 25% vs an over pair. The conservative player throws these hands away. Now if you get 3-4 callers increasing the reward for your risk (getting 4-1 or 5-1 vs your call) no reason not to call.
This is what we had the other day, and based on our strategy the Reward Risk R:R did not make sense so we passed. Yeah sure it could go up, just like sure you could flop 2 pair vs K's, but play it enough and you will slowly dwindle your stack.
Yes there are many other factors that go into playing 8-9 S like how much the raiser has behind them, how much you have, the pace of the table, if the player is a loose or tight player yada yada yada. But the point is we do not take trades where the R:R does not make sense especially when we have 3 bearish reversals behind us.
The level I like is between 8300-8800. This market should not push lower than this if this is part of a broader swing higher. Of course initial support is around 9200 which if this is a strong market with aggressive buyers coming in, it may be all we see. And finally we can just break higher from here also, but this is a lower probability.
Like the 6000 level in the broader cycle, the 7800 is that level we do not want to see taken out here. This would be a flag in the near term.
Also let me quickly comment on the perma-bear. Perma-bears are pessimist always cheering when they are right and when they are wrong screaming loud that "way back when you said blah blah blah and you were wrong". Listen I have been consistent for 2.5 years now that I am long term. I focus on the 3-5-10 year market cycles as those are the easiest to identify and position with.
Lets zoom out again to close out the case here:
The two corrections circled are ends to a broad cycle that are proportional to each other. We have a very clear higher low in place which by even loose reasoning should lead to a higher high. Proportionality is critical when looking at charts which is why those looking at shorter term cycles and screaming the sky is falling are morons! Yeah I am not going to candy coat it.
Now if you want to make a case that in the short term we pullback to retest the low and point to the proportionality of this move is more like a corrective cycle, it is surely arguable and a case can be made.
However to deny that the broader structure is still bullish is simply confirmation bias that you can't believe Bitcoin will make it mainstream is silly. I remember Mr. Wonderful telling people to sell at 1000 years ago. Some just do not get it. For the record I like Kevin, but he is wrong here IMO.
Regardless from a technical perspective, whether you believe this is part of a broader correction, or the next leg higher, there are levels of importance. We are nearly smack in the middle of them.
In the end if you see someone calling for capitulation into the Abyss or calling for a move to 45k based on a daily chart or less, they have no clue on market cycles, proportionality and are likely just screaming into the sky to gain an audience. Proportionality, identifying market cycles along with support and resistance levels based on the time frame you are looking at should be considered when taking a position one way or the other.
Probably a little too much in this article as I go through and proof, so feel free to ask questions.
Once we saw evidence the market was ending this fractal bullish cycle, we trimmed some more, not necessarily because we are bearish, we are not, but because it is critical to get into a habit of selling into strength and buying into weakness.
Regardless of the many fortune tellers out there that claim to have some holy grail indicator, there simply is no such thing. How far we pullback here or if we do pullback further is simply a guess. However we can use evidence via price action (volatility) and proportionality, along with support and resistance levels to provide some perspective as to where we are in the cycle.
First it is important to define a cycle based on time frame and proportionality. Though many considered the consolidation a "bear market", in my opinion this is nothing more than a consolidation in a broader bullish cycle.
On the weekly chart we have what appears to be a clear higher low, but is it really? This is where many omit proportional swings and look for confirmation bias that fits the narrative.
I could also look at this chart and say "it's a broader lower high", and this would be a fair point. After all this previous consolidation was a pretty broad consolidation which is somewhat proportional to the broader correction we had back in 2018. Fair enough. So how do we know for sure?
Well to be honest we really do not know. We are simply making assumptions based on the environment, proportionality and market cycles. What I do not like about the previous consolidation was the time frame. We were looking for a few weeks to a couple months, and it played out for over 6.
Let's zoom out and look at the broader structure:
This does not fit the criteria of a very broad cycle as those took over a year to play out. Does not really fit the criteria of the previous sub or fractal cycles as they were only 2-3 months which is why we thought this one would last about the same. It is kinda in between. So what does this imply?
Well for one the market has matured a lot since even 2017 with institutional investors and larger players becoming more involved. No need to argue, Grayscale's Bitcoin Trust (GBTC) acknowledged that 2019 saw an influx of institutional money and really how many of those on TV are trading CME or BAAKT futures?
Not to mention Bitcoin futures trading on the CME hit $1 Billion and has been consistently increasing since December. Yeah a market that is dead for sure. Keep on drinking the Kool-Aid Bitcoin perma bear!
So back to the proportional aspects of the chart. This is likely the first leg of a broader swing higher. But how do we know whether it really is or not? This goes to whether this is a higher low or actually a lower high.
The key level here that confirms a higher high is taking out the 16,000 on this time frame. From 14k-16k we consider this a fake-out zone where a failed high could play out. So for us to confirm this is a higher low in the broader structure, we need to see 16k taken out.
The key level here to confirm a lower low is 4500. I know it sounds like it is really low, but keep in mind the market pulled back off 14k 8000pts to 6400 area. From a proportional perspective 2k is our subjective view of the room needed to confirm one or the other.
Of course this is in the mid term, not the broader term. For a broader higher high the 24k level must be taken out, and from a broader lower low the 2500 level needs to be taken out. Getting ahead of ourselves here but it puts some perspective to the overall market cycle and proportional levels of interest.
This just provides some insight as to proportional levels of interest based on the broader perspective. There is another level which holds a lot of weight and that is the 6000 level. Taking this level out would be a red flag for bulls.
We mentioned this level prior to the market hitting the 6400 level and swinging higher, so this is not a new level. Came close, but close does not count. This is still a key level of support that we do not want to see taken out.
So what about lately?
As we mentioned to our members last week, watch for the resistance level between 10,150 and 10,400 which could result in a bull trap. A lot of bullish sentiment still in the market, but this was an area to take some profits from lower levels as we did.
The trend line has been taken out which implies this is the end of a fractal cycle. When two or three cycles on different time frames overlap, the consolidation or correction can play out over a longer period of time. We explained to our members why this happens based on the variety of trading and investing strategies that makeup a market.
We are also seeing a pickup in volatility which is also a sign of the end of a cycle. Note the large daily swings as compared to previous consolidations in the prior bull run.
Based on the proportional correction we had after the initial swing higher last year, it not be surprising to see a multi week consolidation before the next move. Maybe it is only a few days, but we would expect and should prepare for another week or two of volatility.
Yes volatility does matter here. Look at the price swing vs other corrections. Much more volatile which is also a sign that this is the end of an interim cycle. Now I did not use Elliott Wave cycles purposely because I do not want to distract from the message. Identifying cycles and most importantly the end of one.
When cycles end, especially in the perspective of a time frame you are trading (we swing trade so we are looking at the daily) many traders give back the money simply over trading in a correction. In addition when looking at trades in a correction they often do not make sense from a Reward to Risk standpoint.
We mentioned to our members Friday that there was a long trade setup but the R:R did not make sense, especially after the outside candle formed making 10k a minor level or resistance. I put this into context using my favorite past time, poker.
Imagine getting dealt 8-9 suited, and someone 3 bets and everyone folds but you. Do you call heads up vs what is likely a stronger hand? No because the probabilities are such that the Reward does not match the Risk. You are getting less than 50% on likely two over cards and potentially 25% vs an over pair. The conservative player throws these hands away. Now if you get 3-4 callers increasing the reward for your risk (getting 4-1 or 5-1 vs your call) no reason not to call.
This is what we had the other day, and based on our strategy the Reward Risk R:R did not make sense so we passed. Yeah sure it could go up, just like sure you could flop 2 pair vs K's, but play it enough and you will slowly dwindle your stack.
Yes there are many other factors that go into playing 8-9 S like how much the raiser has behind them, how much you have, the pace of the table, if the player is a loose or tight player yada yada yada. But the point is we do not take trades where the R:R does not make sense especially when we have 3 bearish reversals behind us.
The level I like is between 8300-8800. This market should not push lower than this if this is part of a broader swing higher. Of course initial support is around 9200 which if this is a strong market with aggressive buyers coming in, it may be all we see. And finally we can just break higher from here also, but this is a lower probability.
Like the 6000 level in the broader cycle, the 7800 is that level we do not want to see taken out here. This would be a flag in the near term.
Also let me quickly comment on the perma-bear. Perma-bears are pessimist always cheering when they are right and when they are wrong screaming loud that "way back when you said blah blah blah and you were wrong". Listen I have been consistent for 2.5 years now that I am long term. I focus on the 3-5-10 year market cycles as those are the easiest to identify and position with.
Lets zoom out again to close out the case here:
The two corrections circled are ends to a broad cycle that are proportional to each other. We have a very clear higher low in place which by even loose reasoning should lead to a higher high. Proportionality is critical when looking at charts which is why those looking at shorter term cycles and screaming the sky is falling are morons! Yeah I am not going to candy coat it.
Now if you want to make a case that in the short term we pullback to retest the low and point to the proportionality of this move is more like a corrective cycle, it is surely arguable and a case can be made.
However to deny that the broader structure is still bullish is simply confirmation bias that you can't believe Bitcoin will make it mainstream is silly. I remember Mr. Wonderful telling people to sell at 1000 years ago. Some just do not get it. For the record I like Kevin, but he is wrong here IMO.
Regardless from a technical perspective, whether you believe this is part of a broader correction, or the next leg higher, there are levels of importance. We are nearly smack in the middle of them.
In the end if you see someone calling for capitulation into the Abyss or calling for a move to 45k based on a daily chart or less, they have no clue on market cycles, proportionality and are likely just screaming into the sky to gain an audience. Proportionality, identifying market cycles along with support and resistance levels based on the time frame you are looking at should be considered when taking a position one way or the other.
Probably a little too much in this article as I go through and proof, so feel free to ask questions.
