Most traders and investors like a narrative. Rather than look at a spreadsheet, they much prefer to read the output of a word processor. I prefer a spreadsheet but a narrative does have its place as a lens to study the market with.
With this in mind you can see a market as a battle between bulls and bears. It is certain that the market can go up, down or sideways but not right to left so you can study the chart, which is merely a record of price discovery and hope to see this conflict unfold.
The more perfect the market, the noisier the picture, but in a fast market or one in crisis the picture is much clearer.
It appears quite clear for bitcoin. Here is the battle field:
Obviously bitcoin has been in a bear market since December, but the state of play now is that the bulls and bears are squeezing the bear trend into an increasingly tight range. You could see this as the market reaching consensus on a stable price as the trends of the peaks and the trends of the troughs converge.
Unless to dispense with charts all together and model bitcoin as a perfect market you can judge breaking outside of these trends as setting a new trend either up or down. Making a lower low beyond its current trend would look very bearish or breaking above a lower high would be bullish in the short to medium term.
Trends are formed by people’s best guesses so significant new information will break these trends and that is why watching trends is informative.
Take for example the sudden rally of bitcoin on July 17 2018.
Something happened and as yet no one is pinning this move on anyone or anything. Clearly something happened, but we know not what and may soon find out or never know, but something significant did happen.
I’m sure many people find this heartening and as a holder of all sorts of cryptocoins, including BTC, I’m quite happy to see the market rally, but in general this is how prices behave in bear markets.
This is a simple diagram of the difference between a bull market and a bear market, normalized for direction:
In a bear, it trends down and spikes up, in a bull it trends up and spikes down.
As such, this recent move is more likely a ‘bull trap’ than a turn of the tide… but we will see.
At these levels I am accumulating, if it falls as I expect I will scale that up significantly.
As I say time and again, all you need to know is which way the market is going long term and even if bitcoin fell to $500 a coin, which it won’t, bitcoin is going up, the rest is just market timing, which just happens to be the hardest game in town.