- Volatility or lack thereof can also serve as a tool for analyzing market trends
- Bitcoin is often bearish, but a downtrend can be painful
bitcoin [BTC] Investors faced some tough times in 2022. Investors and traders who have witnessed the Celsius, Tera, and FTX crises (among many other events) have seen history unfold before their eyes.
All this history is revealed on the price charts, and it is possible that we can prepare for the worst case scenario by studying these charts. Look to the past to understand the future, as a famous person once said.
Read bitcoins [BTC] Price forecast 2023-24
It should be noted the periods when the volatility disappears. For assets like Bitcoin, a drop in volatility often heralds a massive move around the corner. Bollinger Bands are one of the simplest tools for measuring the volatility of an asset on price charts.
Bollinger Bands indicator results
Bollinger Bands is a tool developed by John Bollinger. It has two bars chart one standard deviation above and below the price (based on the last 20 periods). These ranges are adjusted based on the volatility of the price of the underlying asset.
When the width of the Bollinger Bands decreases, it indicates a period of low volatility or contraction on the price charts. This generally highlights a period of accumulation before a strong move to the upside, especially on higher timeframes. But it can also indicate the stages of distribution, before moving down again, when buyers are exhausted.
On the daily time frame, the Bollinger Bands Width is showing a reading of 0.09 at press time. It had fallen to 0.07 on December 1 and 0.06 on October 25. Previously, the BB width indicator touched these values on the daily time frame on October 8, 2020.
Other dates in 2020, such as August 26 (0.07), July 15 (0.04), and September 21, 2019 (0.06), also had very low values.
Northward expansions followed less fluctuations
History does not repeat itself, but it rhymes. All technical analysis is based on patterns that repeat themselves over and over. The downturns in October, August, and July 2020 came right before the latest bull run in which Bitcoin shredded as high as $69,000.
However, Bitcoin is in the depths of winter in a bear market at the time of writing. Throughout 2023, Bitcoin may not start the strong higher time frame trend seen in late 2020 until mid-2021.
Therefore, there is a need to find times for volatility to dry up after Bitcoin has regained most of its gains from the bull run. This happened in late 2018 and early 2019.
The above chart shows the late 2017 rally to $19.5000 and the subsequent rebound in 2018. During the downtrend, volatility was almost dead in September and October 2018.
The BB width indicator consistently showed values of 0.08 and 0.09. However, another sharp drop followed, from $6K to $3.3K. From December 2018 to March 2019, the bulls fought for their lives to push the price back above $4.3000.
Finally, when this resistance was broken, a rally to $13K followed. Hindsight tells us that this was not a true bull run. However, breaking through $4.3k was a great move, north of 220% in less than 90 days.
Therefore, the conclusion was that low volatility does not automatically translate into a long-term bottom. At the time of writing, Bitcoin has lost the $18.7K level, and another drop towards $10K is likely to occur, just as it did in late 2018.
This rally peaked at $13.7K in June 2019 and slowed in the months that followed. In September 2019, the volatility dropped to 0.06, but it took until the covid-19 crash for the markets to find a long-term bottom and turn around.
Breakthroughs in market structure can be key to spotting highs
Despite the rebound from $4.3K, Bitcoin has not been in reversal. It took until a higher time frame bear market structure was broken, as shown in the chart above. The move above $9k reversed the long-term bias in favor of the bulls, and the break above $10.5k showed bullish strength.
What can we learn from this chain of events? Compared to today, the volatility was low, and the trend was down, just like August-October 2018. From June to November 2018, the $6,000 level was very solid, until it wasn’t, and the price collapsed another 46%. Could the same thing happen in 2023?
Is the $18.7k level the limit that was $6k in 2018? $18.7K in support was defended from June to November 2018, for a period of 144 days.
This was similar to the $6K defense from June to November 2018, but the difference is that the $6K mark was actually tested as support back in February 2018.
Now that $18.7000 has been lost, more losses were likely to follow. Long-term BTC bottoms tend to form suddenly after months of warning.
Another crash, like the one we saw during the coronavirus pandemic, or November 2018, would be necessary to force billions of dollars to liquidate before markets can rally.
Use Heat map of filter levels An anonymous analyst on December 29 assumed $15,000 and $13,000 as the key liquidation levels, with $50 billion liquidating near the $13,000 level.
As indicated in the previous tweet, if we can kill off all that liquidity in a timed fashion, I really like the prospects for a big bounce.
13k to 30k hopefully. https://t.co/dm78uFuH40 pic.twitter.com/3HiqRCmG49
– TradingHubb (@TheTradingHubb) December 29, 2022
The price is looking for liquidity, and this area can be very exciting and cannot be left unattended. A break below $15.8000 could show already dire market conditions and it is time to panic.
Forced sellers, in both the spot and futures markets, can make prices fall further and further and end up with a chain of liquidations.
Patience will likely be rewarded, but an all-time high is unlikely to be reached in 2023.
In the event of a drop to $13K-$13.8K, buyers can wait for a return above $15.8K-$17.6K and expect a rally, perhaps a mirror of that in mid-2019. As always, it may not quite repeat, and it will be Caution is the key.
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It wasn’t certain or even necessary that $13K would mark the bottom. Heat maps and the highs of the mid-2019 rally show the confluence of this level.
If BTC instead sheds another 46% below the $18.7000 support, investors could look at $10,000 as an area where a bottom could form. The way you would roll the dice was uncertain.
641 days have passed between Bitcoin’s collapse below the $6,000 support level in late 2018 and the retest of $10.5000 as support in Q3 2020. 641 days after November 10, 2022 gives us August 12, 2024. But each cycle is different, and all a trader or investor can Controlling it is the risk they take.
Above described a scenario whose main theme is liquidity and volatility. When volatility goes on vacation, so does liquidity. It may be necessary to make a large and violent movement to remove even the fanatics from their posts.
Only then can the market turn around. In this shark game, shark eat, patient survive and ready to earn money.