Bitcoin Volatility and Volume based system still biased bearish.
Updated
A new month and a new iteration of this system. I developed this volatility and volume based system to help me with the wider view of markets and to help me steady my hands when it is time to let your winners run and also help me cut my losers. It works for me on various time frames so long as I am patient and don't overthink things. I am not qualified to give financial advice though.
Key Components
Supplemental Components
The Analysis
Bitcoin has been below the VSTOP and the MTF VSTOP for three whole periods and has begun this fourth period below as well. There has been some candle wicks above the VSTOPs but so far there has been profit taking at those levels and if we are looking at the VSTOP as dynamic support and resistance they have acted very well as resistance. The history so far is pretty clear, when the VSTOPs are concurrently bearish price action falls below the 20 SMA. Buying 50% below the 20 month SMA has been reasonable given our two data points. It may take a couple of months of chop for it to happen. We only have two previous data points to observe but I am not taking a gamble right now with a long until I see the VSTOPS flip bullish. Historically that takes more than just 4 periods.
The OBV has slipped the 10 EMA which further supports the idea that this sideways action is biased bearish. By itself the OBV would not mean much. Remember, the OBV going sideways or slightly below the 10EMA could just be a sign of continuation but a look at the lower time frames does not really support that. Unless there is some massive continuation pattern I have not seen (an ascending triangle, a W pattern, a bump and run bottom, etc).
Likewise the MACD histogram is falling which suggest a MACD-Signal cross is likely. Once again, a MACD-Signal cross could just be a sign of sideways consolidation but there is no pattern I see that suggest continuation to the upside at this point, and the Volatility situation is still bearish
My personal Posture
I have a small short out there on a volatile alt. Aside from that I am stacking what USD/T I can for when I see this tension break. My linked idea regarded a potential ABC correction shows where I plan to enter crypto for a long investment and I am prepared to hold for a while. The other two lined ideas shew where used this system to predict the bear market was upcoming. I am aware that this posture has me against a lot of traders with a lot more experience than me. But if I am wrong the move will be long enough that I still make enough money to stay in the game one more cycle.
Key Components
- Volatility Stop: This is based on the average true range, which is a measure of volatility with a standard look back period of 14. The VSTOP default look back is 20 and on this chart is formatted to appear as dots either above or below price depending on if price has been moving up or down. It helps to determine bias as well as dynamically chart support and resistance
- Volatility Stop Multiple Time Frame (MFT): an application of the VSTOP but set to a different time frame than the main chart. In this instance it is set to 3x the timeframe of the main chart and would be the quarterly VSTOP. It likewise charts dynamic support and resistance and can identify a major change in trend.
- On Balance Volume with EMAs: The on balance volume helps look at how much buying and selling volume is really occurring in the market. It can also be used with peak to peak divergences and so if you see an general uptrend will falling OBV you can see that the uptrend is not volume supported and you may see a bearish reversal. Same with valley to valley lows and bullish divergence. To help visualize changes in the OBV against itself there are the OBV Exponential Moving Averages. A cross of the on balance volume with a EMA means that the OBV has roughly been flat for a certain time period and moving flat is the first sign that a trend may be consolidating for reversal. Likewise if the 10 and 20 EMAs cross that is a sign that the OBV has moved sideways and may be poised for reversal.
Supplemental Components
- The humble 20 period SMA: the 20 period SMA is a core SMA as it forms the basis of the default bollinger band midline and is a close approximate of the 20 EMA, which is the baseline of the Keltner channel. During uptrends lots of technical buying happens at the 20 and crossing the 20SMA with a whole body candle above or below is generally a sign of strength or weakness in a trend.
- MACD: one of the most used indicators and it can provide a lot of high quality signals when used with divergences on the MACD itself and the MACD Histogram as well as when the MACD crosses its signal line or zero. I generally supplement my MACD charts with the MACD EMAs but I won't be going into that here.
The Analysis
Bitcoin has been below the VSTOP and the MTF VSTOP for three whole periods and has begun this fourth period below as well. There has been some candle wicks above the VSTOPs but so far there has been profit taking at those levels and if we are looking at the VSTOP as dynamic support and resistance they have acted very well as resistance. The history so far is pretty clear, when the VSTOPs are concurrently bearish price action falls below the 20 SMA. Buying 50% below the 20 month SMA has been reasonable given our two data points. It may take a couple of months of chop for it to happen. We only have two previous data points to observe but I am not taking a gamble right now with a long until I see the VSTOPS flip bullish. Historically that takes more than just 4 periods.
The OBV has slipped the 10 EMA which further supports the idea that this sideways action is biased bearish. By itself the OBV would not mean much. Remember, the OBV going sideways or slightly below the 10EMA could just be a sign of continuation but a look at the lower time frames does not really support that. Unless there is some massive continuation pattern I have not seen (an ascending triangle, a W pattern, a bump and run bottom, etc).
Likewise the MACD histogram is falling which suggest a MACD-Signal cross is likely. Once again, a MACD-Signal cross could just be a sign of sideways consolidation but there is no pattern I see that suggest continuation to the upside at this point, and the Volatility situation is still bearish
My personal Posture
I have a small short out there on a volatile alt. Aside from that I am stacking what USD/T I can for when I see this tension break. My linked idea regarded a potential ABC correction shows where I plan to enter crypto for a long investment and I am prepared to hold for a while. The other two lined ideas shew where used this system to predict the bear market was upcoming. I am aware that this posture has me against a lot of traders with a lot more experience than me. But if I am wrong the move will be long enough that I still make enough money to stay in the game one more cycle.
Note
On a lark I decided to put the 3M vstop on the daily chart and do some charting it seems that price is broadly channeling up. Getting above the black trendline of course would be very bullish but that sets up a retest of the trendline which could have price dancing around the vstop for the next 5 weeks before "the market' makes it decision. Even if price gets above the VSTOP it could remain in this channel for another couple of months. The MTF VSTOP needs price action to be above the bearish level with a candle body for a whole month before the move would be confirmed at this high level. A monthly MTF VSTOP break would predict about a year of crazy upside though.
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