Bitcoin is in Heavy Accumulation Phase [Price Analysis]

Price Analysis Jan 25, 2021

This is a spur-of-the-moment Bitcoin price analysis - motivated by the sudden upswing in the crypto markets.

Side note, Ethereum is looking great and it probably will break its ATH in short time (we'll look at that one separately).

Bitcoin Charts (H4 Resolution)

Looking at the H4 resolution here because we're checking out some short-term moves here.

Below is a quick chart of Bitcoin (obvious horizontal overhead resistance was drawn here):

That overhead resistance is not the end-all, be-all, but it is definitely meaningful.

Potential Double Bottom Forming?

If we zoom out slightly, it appears that there is a double bottom-esque

Check it out here:

Admittedly, this is a janky looking 'double bottom' if we've ever seen one and generally double bottom patterns form over a much longer period of time (typically several periods in between each 'bottom' of the 'W' of the double bottom).

Below is an illustration of what a 'textbook' double bottom chart formation looks like:

Here's another good one:

You get the gist. This is a reversal pattern 99% of the time (i.e., reversing from a downtrend into an uptrend).

Main Principle: The 'double bottom' part refers to the two touches that form a 'support' of sorts, which shows that the markets have stated they will not value the asset below that price. The big takeaway here is that the double bottom represents what may be the greatest extent to which the bears are able to push the bulls back. At a certain point, its expected that traders will also be closing shorts to take profits as well once they see the second unsuccessful attempt to push the price down, resulting in an alleviation of sell pressure.

Balance of Power RSI (H4 Resolution)

What better indicator to check if there's an alleviation of sell pressure than the Balance of Power RSI? (that's what this indicator was built for)

Check it out below:

The Balance of Power RSI does definitely corroborate the idea that sell pressure has alleviated (and that there is a ton of buy pressure that has picked up over the past few periods).

Let's check out when the Balance of Power RSI began shooting up:

It appears the shift began around January 21st, at 7 p.m. EST (GMT-5).

Let's check how the price action has evolved from that point:

What the Chart Above Tells Us:

We saw hardly any movement in the price from the beginning of our selected period to now (delta = +8.09%); yet the Balance of Power RSI shot up through the roof over that same period of time. This seems to indicate considerable accumulation taking place.

There was a horizontal support line drawn where the first bottom of the hypothetical (not really) 'double bottom' that we identified earlier. By drawing that horizontal support, it became apparent that Bitcoin has been (and still is) locked within a 'trading range'.

What is a Trading Range?

According to Investopedia:

"A trading range occurs when a security trades between consistent high and low prices for a period of time. THe top of a security's trading range often provides price resistance while the bottom of the trading range typically offers price support" source

That definitely defines where we are right now.

That same page on Investopedia also gives us a helpful hint on how we can determine which direction that a breakout will occur within a traded range in stating:

"A breakout occurs when the price of a security breaks above a trading range, while a breakdown happens when the price falls below a trading range. Typically, breakouts and breakdowns are more reliable when they are accompanied by a large volume, which suggests widespread participation by traders and investors."

The most important point to note, however, is that the "breakout" or "breakdown" is usually contingent on the momentum of the stock.

Hmm, are there any indicators that we can use to determine the momentum (strength) of our 'stock'? (Bitcoin)

Relative Strength Index(14) [H4 Resolution]

There she is in all her glory:

It isn't hard to gauge the overall direction of the RSI(14) after our one brief look above:

Our line is also colored green, which means that the faster moving average of the rate of change has exceeded the slower one; indicating that momentum is not only increasing but increasing at a gradually increasing rate (sorry if that sounds confusing; try not to think too hard about that).

Librehash Reversion Ribbon V2

We're going to round out with the Librehash Reversion Ribbon V2, which actually looks pretty good for Bitcoin on the H4 resolution.

Take a look below:

We can draw the following readings from the Librehash Reversion Ribbon V2:

The light green candles show that there is very light buy pressure behind the price currently. This could be perceived negatively by bulls (i.e., if someone were expecting there to be a bunch of coiled up energy).

But the better way to interpret this would be to note the shift in the color of the candles that were dark red previously (but are now light green). This also means that there is plenty of room for the momentum to grow from where we're at (which wasn't the case before when all of the indicators on Bitcoin were screaming that it was grossly overbought).

The Reversion Ribbon has just passed above the histogram again. This is another huge observation to make because, just like the MACD, when we see a cross above the histogram, that is a signal in itself. This specific signal (when accompanied with an upward trajectory in the ribbon) means that the ribbon is signaling a reversal in trend (i.e., from a downtrend [briefly] to an uptrend again like where we were).

The ribbon itself is green, which means that the faster moving average crossed over the slower one (that's what the lines are composed from; unlike the MACD, these are not simple moving averages though and the period of lookback is different entirely - there is also a potential color change in the ribbon itself based on the intensity of the sell / buy pressure)

Divergence can be observed in looking at the ribbon itself (physically), observing its values and viewing the histogram as well. This is a particularly important signal because it shows us that not only is the indicator signaling a change in trend, its also telling us that there is an increase in that upward building momentum over the past few periods.

Ribbon Diverges With the Price Slightly

Its rare that we ever capture any divergence with this indicator (as it is fundamentally not designed to really diverge with the price since its more of an information acquisition tool than anything) - but it seems like this is one of those cases where we have positively identified divergence between the price and the Librehash Reversion Ribbon V2.

See below:

Once again, this seems to indicate that there is a significant amount of accumulation going on for Bitcoin, which could be major foreshadowing of impending bullish price action (remember, we expected a continuation at some point in time).

Conclusion: R/R on the Trade

We're definitely going long on this one (this feels like a no-brainer almost).

If we're wrong, then we're wrong - but we never fear betting on a long position during a clear accumulation cycle in a bull market.

Especially when there's an established support no more than 8-10% against our entry position.

Below is the R/R for our trade:

Tags

cryptomedication

Happy to serve and help wherever I'm needed in the blockchain space. #Education #EthicalContent #BringingLibretotheForefront

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