DIVERGENCE SPOTTED ON BTC - What this could mean and more!
Hello Traders,
Let's jump right into it.
Weekly timeframe (left chart):
- Bearish arguments -
RSI and MACD both showing classic bearish divergence to the price, as seen from the green and red lines.
RSI below bullish control zone.
MACD looks to be swinging negative in the next few weeks.
Falling volume with increase in price in last few months - may indicate weakness in uptrend.
- Counter-arguments -
Price is still above steep orange support trendline, trend may continue upwards if it can break 61000 and hold
Price is still above 50 and 200 MA, and 50MA above 200MA.
--- Drawing conclusions ---
We may already be seeing the bearish divergence play out in the last two weeks, but since this is a weekly chart and not a daily or 4hr, we may see further continuation to the downside due to the fact that this divergence has been building up for the better part of 9 months. If the price manages to break below the orange trendline and/or critical support line at 52000, we could be in for a 6+ month downtrend/correction. Given the nature of this market, it may be a sharp and swift correction rather than a drawn out one, but keep an eye out for a short opportunity if we break below these critical levels. Targets to consider in such a trade set up include the 50MA, 40000 psychological support (not sure how strong this one is), and the golden retrace at ~28k.
4 hour timeframe (right chart):
- Bullish arguments -
Classic bullish divergence on RSI and MACD as shown by the green and red lines.
RSI above bearish control zone.
- Counter-arguments -
50MA below 200MA, price is below both.
--- Drawing conclusions ---
While a downtrend seems to be happening on this shorter timeframe, a short reversal to the upside may happen since we have a strong argument for bullish divergence. 61k may be tested first before we see a true downtrend. Arguments for why a large downtrend is likely to occur is explained above. An aggressive short could be taken at 61k if the price is to make a short term rebound with stop-losses at ATH or 64k.
Concluding thoughts:
There are two scenarios where I would enter a short here.
1) Price hits 61k from 4hr bullish divergence and I see signs of weakness thereafter on the 4hr.
2) Price drops below the orange trendline and the weekly MACD is confirmed to be swinging negative.
As for the exits in these scenarios, I would not be targeting anything lower than 28k, and I would be scaling out at critical price points on the weekly timeframe.
Since I am a retail position trader, I have the luxury of not making trades, unlike some fund managers who must take trades to reach a performance quota.
Due to this luxury, I will be waiting patiently for an opportunity to present itself on BTC.
Finally, if you're new to this space and FOMOing hard:
Don't panic buy right now lol.
Let's jump right into it.
Weekly timeframe (left chart):
- Bearish arguments -
RSI and MACD both showing classic bearish divergence to the price, as seen from the green and red lines.
RSI below bullish control zone.
MACD looks to be swinging negative in the next few weeks.
Falling volume with increase in price in last few months - may indicate weakness in uptrend.
- Counter-arguments -
Price is still above steep orange support trendline, trend may continue upwards if it can break 61000 and hold
Price is still above 50 and 200 MA, and 50MA above 200MA.
--- Drawing conclusions ---
We may already be seeing the bearish divergence play out in the last two weeks, but since this is a weekly chart and not a daily or 4hr, we may see further continuation to the downside due to the fact that this divergence has been building up for the better part of 9 months. If the price manages to break below the orange trendline and/or critical support line at 52000, we could be in for a 6+ month downtrend/correction. Given the nature of this market, it may be a sharp and swift correction rather than a drawn out one, but keep an eye out for a short opportunity if we break below these critical levels. Targets to consider in such a trade set up include the 50MA, 40000 psychological support (not sure how strong this one is), and the golden retrace at ~28k.
4 hour timeframe (right chart):
- Bullish arguments -
Classic bullish divergence on RSI and MACD as shown by the green and red lines.
RSI above bearish control zone.
- Counter-arguments -
50MA below 200MA, price is below both.
--- Drawing conclusions ---
While a downtrend seems to be happening on this shorter timeframe, a short reversal to the upside may happen since we have a strong argument for bullish divergence. 61k may be tested first before we see a true downtrend. Arguments for why a large downtrend is likely to occur is explained above. An aggressive short could be taken at 61k if the price is to make a short term rebound with stop-losses at ATH or 64k.
Concluding thoughts:
There are two scenarios where I would enter a short here.
1) Price hits 61k from 4hr bullish divergence and I see signs of weakness thereafter on the 4hr.
2) Price drops below the orange trendline and the weekly MACD is confirmed to be swinging negative.
As for the exits in these scenarios, I would not be targeting anything lower than 28k, and I would be scaling out at critical price points on the weekly timeframe.
Since I am a retail position trader, I have the luxury of not making trades, unlike some fund managers who must take trades to reach a performance quota.
Due to this luxury, I will be waiting patiently for an opportunity to present itself on BTC.
Finally, if you're new to this space and FOMOing hard:
Don't panic buy right now lol.
