The Bitcoin Bear Market: An Ichimoku Analysis

GoldHawk
GoldHawk
Sep 4, 2018 · 4 min read

The current price movements provide great signals for the bulls out there, and a trend reversal may finally be upon us. The path will not be easy, though.

First, I would like to start introducing the core of this analysis, the Ichimoku Clouds, which you can see on the picture above. In my opinion, the best way to describe this indicator is: a group of four simplified moving averages (which means many characteristics of moving averages apply to the Ichimoku Clouds).

In a time when calculating the average of the closes from the last n candles would be too time consuming, the average between the highest high and the lowest low from the same period could do the trick. Despite it’s simplicity, the technique still holds up to this date because highs and lows, just like closes, provide significant information about the fight between bulls and bears. The highest high is said to be the maximum power of bulls within a time frame, and the lowest low the maximum power of bears.


For those interested, a lot of content is available online, and for a more in depth reading I recommend “Ichimoku Charts: An introduction to Ichimoku Kinko Clouds” by Nicole Elliott.


Getting the introduction out of the way, time to get into the analysis:

1)Since January 17th of this year, when prices closed below the clouds at 11200, Bitcoin has been in a bear market (in ichimoku definitions). Although three big warning signals were given the day before at around 13400 (point A), which are the cross of the conversion line (blue) below the base line (brown), the prices breaking down below the base line and getting into the clouds. All of that indicated bears were overwhelmingly more powerful than bulls.


2) After that, prices got rejected by the Base line (Brown) every time it was touched for the next 97 days, as you can see below. Just like with moving averages, those going short and expecting rejection most likely did well #followthetrend. Finally, in April 24th, the base line was broken (point C)

However, at that time, a significant barrier was upon us. In order to reverse the trend, prices needed to jump 28% and close above the cloud at 11500. It was possible, but extremely unlikely.

The thickness of the cloud determinate the strength of the leading forces in a trend. At the time, the cloud reached it’s maximum thickness, which quickly lead the prices back below the base line and towards new lows.

A much better time to end the bear market was in March 5th (point B), when the cloud thickness was approximately zero. unfortunately, prices never closed above the base line at 11700, which meant the power was still with the bears and the breakdown was hard.


3)In July, after staying below the Base Line for another 56 days and playing around the conversion line, prices rallied again. Bitcoin broke through the Base Line (point D) and, 4 days later, through the cloud.

Compared to the last breakthrough, the cloud was much thinner. This time it needed to jump 16.5% to go above the cloud, which shows how bears were getting weaker. But, again, it still was not the time.

For the second instance, prices went below the cloud and the base line, but this moment only lasted for 28 days and we are now back above it (point E). Furthermore, the current thickness of the cloud is a 6.5% move to the upside, much more achievable than the first number: 28%.

Currently, prices sit between the thin region above the base line at 7150 and the cloud 7400 — Trading Range. The first bullish signal will come if prices open and close into the cloud (which did not happen at September 2th). Traders who like to get in early may enter a position here.

The definitive signal will come if we ever close and open above the cloud at 7900, which I’ll now refer as “the bull line”. The bull line is of extreme importance, since closing above it means that for the first time since January of this year the bulls are overpowering the bears in the long term trend. That could set up the seeds for the bull market.


I suggest paying close attention to the Bitcoin price in the next weeks, because, probabilistically, this is one of the best opportunities to get into the train.

There’s always the possibility we never close above the cloud and never come near the bull line, break below the base line and go to new lows, just like the last two times. In that case going short wouldn’t be a bad idea, but this possibility is at all time lows.


Trade carefully. Don’t risk what you can’t lose. Thank you for reading.

GoldHawk

GoldHawk

Written by

GoldHawk

ForEx and futures trader from Brazil. Longterm HODLer of Bitcoin. Providing educational articles and Technical Analysis

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