Bitcoin – Cycles Edge Special
Bitcoin Bulls Shine
Bitcoin bulls are back in town! In a world where 10-year Treasury yield hit its highest levels since 2007, Dollar index (DXY) had 11 consecutive green weeks, and the S&P 500 declined over 7% since July 2023, Bitcoin still held its June 2023 lows – indication of incredible strength by the bulls. Holding the previous lows through September, the worst month for Bitcoin since 2013, the odds now favor the upside.
Breakdown of Monthly Returns (2013 – 2022) For the Rest Of 2023:
September:
Average: -6.0%
No. of positive September: 2 out of 10 i.e., 20%
October:
Average: 22.99%
No. of positive October: 8 out of 10 i.e., 80%
November:
Average: 46.39%
No. of positive November: 6 out of 10 i.e., 60%
December:
Average: 5.01%
No. of positive December: 4 out of 10 i.e., 40%
Source: Currencyrush
A few points to note from the above chart:
September is the worst month for Bitcoin with only 2 positive Septembers. Congratulations to the persistent few who survived this crypto terrain!
October is the best month on record (we’re here!) when looked from an average return + hit rate (success rate) criteria
November has the highest average return (46.39%) but is skewed by the 400% + return from November 2013
December has an average return of 5.01%, but a poor hit rate of only 40%, indication of requiring strict risk management if one is to take trades during this period
Weekly Outlook – Big Move Brewing
When in doubt, zoom out. The weekly chart of Bitcoin shows traders the major pivot points. Ever since a rejection from the $31k region in early July, Bitcoin has seen relentless selling until buyers eventually stepped in around the $25k region in late August. After repeated attempts by bears to break the $24.7k region, the tables have turned, and the bears seem exhausted. Bitcoin is setting up the stage to make its first attempt at the 30k level. But the waters aren’t clear until a confirmed weekly candle close above the $32k region. Following that, the road to $37.5k should be smooth sailing.
The next move brewing is very likely a big one! How do we know this? Our secret sauce – one that we’ll share with our subscribers in the coming articles. The indicator at the bottom panel in the chart below is a measure of volatility. It helps indicate how small / big (volatile) that particular move is likely to be. Remember, a big move can be in either direction, this indicator does not speak to direction, only volatility i.e., the size of the move.
The lower the reading of this indicator, the lower the volatility present in that particular move, and vice-versa. Since 2018, when this indicator moves below the 20% level on a weekly time frame for over 4 weeks and then expands (moves above 20%), it tends to generate sizeable moves (in either direction). This is exactly the type of moves that allows traders to make highly profitable trades with solid risk-reward in a short period of time due to high volatility.
Currently, we’ve met the indicator’s setup criteria and are waiting for the expansion phase as confirmation for THE big move to announce its arrival. The longer this indicator stays in the low volatility zone (below 20%), the larger the next move is likely to be. However, the key here is to be able to determine the direction of this move, and that’s exactly where we come!
Monthly Confirms Weekly
The close of September marked Bitcoin’s first monthly close above its 20-SMA, a pivotal moving average throughout Bitcoin’s history. This move occurred near a bullish ASO (Average Sentiment Oscillator) crossover, providing further bullish confluence. The ASO is a technical indicator that displays the depth of market volatility (working well alongside the above indicator), and the strength/weakness of the move. It allows traders to understand the status of the market trend and its level of stability + reliability.
In simple terms:
Blue cross above red = Bullish
Red cross above blue = Bearish
Looking back at this setup since 2011, it shows significant moves to the upside, except for the flash crash seen during the Pandemic. Typically, the ASO bullish crossover tends to happen after Bitcoin reclaims its 20-SMA on the monthly time frame; however, this time around the cross came a week before, signaling that the underlying reliability of the uptrend is strong even though the price action is yet to reflect it.
Moon Cycle Lays Bullish Foundation
Lunar cycles in trading is a strategy that is often overlooked by traders yet provides a good edge + factor of confluence. Trading with market cycles versus against it, is comparable to swimming with the tide or against it. To put this into perspective, between January to June 2023, the moon cycle gave 5 buy signals, out of which 4 saw significant upside and 1 led to slight drawdown (false signal). While there are several different lunar cycle strategies, the basic strategy for the one being discussed is to go long on full moon and close the long on new moon (a contrarian strategy). We’ll expand more on this in an educational piece at a later point.
Currently, we’ve entered another phase of full moon i.e., a long signal, providing another phase of bullishness for Bitcoin. A concept to remember here is that while every full moon does not result in big upside moves, most big upside moves for Bitcoin happen during full moon phases. The latter is a key point to note because it helps deduce periods of high probability upside moves, something that a lot of crypto investors try to anticipate.
The key to any harmonious trading service is to help its followers Make Money. Cycles Edge is here to do just that. Feedback in the comments below is much appreciated. Until next time!