Bitcoin in monthly candles

已更新

Howdy, fellows! Newbies and pros--to all of you, my deepest salutations,

First things first, see the attached idea for a simple historical look.

And also, don't forget to give it a thumbs up, and to follow me for updates and other ultra-precious analyses from a former currency pair gourmet. Indeed, I still work for the same investment house, but now my focus is on emerging market stocks. Anyhow, I am not here to share my views on stocks, but on cryptocurrencies, and among them, the most precious one, namely, Bitcoin.

First of all, it must be noted that one should study Bitcoin for all other cryptocurrencies as well, because it's still the market leader. When it booms, hardly anyone talks about altcoins, except maybe with a few exceptions-

1) Ethereum (ETH): This is clearly the most austere Bitcoin follower. It reached a fantastic 35% market dominance at its peak, currently staying around a humble 10%.
2) Ripple (XRP): This is hardly a cryptocurrency, but one has to pronounce its name when it comes to trading in crypto markets, as it peaked at 25% market dominance, currently lingering around 10%.
3) All others: I follow the market dominance of "other" cryptos at CoinMarketCap, hoping that TV will have better capabilities. I believe several projects among them have the potential to have a geniuine contribution to peoples. To name one, I can utter Cardano (ADA), which clearly distinguishes itself from competitors.

And Bitcoin enjoys a 50% market dominance. It still means a lot, especially considering it's 5x its closest follower. So, all in all, Bitcoin is still the king among cryptocurrencies. Even if one considers that the 2017 rally was accompanied with a dramatic decrease in its market share, one has also to remember that even at its lowest point (in terms of market dominance), Bitcoin was the sole cryptocurrency that is known to people in its own right. Ethereum and Ripple, on the other hand, have remained being "something like bitcoin."

The other issue is the use of arithmetic scale in charts, which I favor over the semi-log plot. On that, I will not make any further comment but will only cite Richard Shabacker:

"There are three principal types of scales used for stock charts: the straight or arithmetic scale, the logarithmic or ratio scale, and the square-root scale. Each has its advocates although the square-root scale is least used and appears to have no important advantages. . . . The advantages claimed for the ratio scale are based chiefly on the fact that the higher stocks go in price the wider the fluctuations tend to become, measured in points of movements. The logarithmic scale is supposed to compensate for this tendency by plotting actual distances on a percentage basis.

In our experience, however, we have found that the arithmetic scale is easier to use, and the distortion of patterns is much less than on the logarithmic scale. Ratio plotting tends to compress the patterns at high price levels almost to insignificance, and to exaggerate the patterns formed at low levels out of all proportion to their technical importance, making their correct interpretation extremely difficult.

As to trend lines, logarithmic charts, with one possible exception, do not ordinarily give us straight lines which can be turned to profit in trading. The one possible exception is the long-term bull market trend which tends to accelerate or curve upward on an arithmetic chart. This phenomenon appears most plainly and consistently on the monthly charts of the averages and certain of the more substantial leading stocks which follow the general market closely. . . . On the other hand, logarithmic charts are of no assistance in major downtrends, nor in either up or down intermediate trends." (Technical Analysis and Stock Market Profits, pp. 290-1)

Okay, so, we have dealt with some preliminary issues, but it's already been too long for a normal post. So, it's best if you just follow me or give this a like so that you know when I update the idea with more enjoyable stuff.

註釋

Alright, so, I added here the same chart with volume data. First of all, a rally like the one we witnessed in 2017 sweeps all previous important levels and puts forwards its own, because the market discovers a zone for the first time, and after that, all that follows must remain in the shadow of the highness of the initial impulse. In our case, it is for our advantage, because now all we have to do is to seek a clear reversal signal, instead of checking out complex relationships with previous levels. Still, it does not mean that we will just indulge in mindless gropping. It is rather the fact that a sober study of previous market action is decisively needed. However, we won't be dealing with the 2017 rally itself, as it's mostly a pure frenzy.

As a result, for our current purposes, what matters most is what has been happening since the beginning of 2018 and not before that (keep in mind that we already know the zones I, II and III).

January: This candle reverses the one before it, and thus is a strong indication for an incoming reversal. Depending on the strength of the previous trends, one might however be tempted to believe that there'd be a bounce. Nevertheless, it is because of the upward curve in the 2017 rally that even such a weakness cannot be tolerated. Bubbles feed on extreme market enthusiasm, and when that is over, trend turns.

February: This is a range candle. It clearly shows that the rally is over, and it also spans the price range which won't be transgressed in the following months till October. The fact that its opening and closing prices are so close indicates the possibility of a further increase in price, which actually happened a little bit in March.

March-October: There is no need, as of now, to analyze this area month by month. As seen, it's a triangular consolidation, in which volume shrinks, and after which both bullish and bearish were possible.

November: The big red November candle was like a slap in the face of all those wishful thinkers.

December: The market has thus entered a place of congestion. To see what's happening inside the candle, further study is needed.

So, the market has done 3 moves since the beginning of 2018.

1) Reversal of the previous rally (January).
2) Long-lasting indecision (the triangle).
3) Resolution to get closer to the Zone II.

These all show that one must think before act, and one must try hard to be free from wishful thinking.

In my next post, I think I'm going to do a weekly chart.