Trapped Traders

Another trading technique you can use to increase your BTC and USD holdings is to recognize zones of trapped traders as support/resistance. You can recognize areas of trapped traders by looking for volume spikes. Volume spikes can be seen by volume candlesticks that are far larger than the average amount of volume typically transacted. These areas tend to coincide with high volatility as well. 

Notice in the picture above that the large volume spike that occurred midday on the 7th led to that area later acting as momentary support. A solid strategy in this scenario would have been to have sold BTC in the consolidation range around 42000 and then place bids from 40500 to 41000 as that was the previous volume spike area. 

 

In the example above, a previous support level acted as support again. In a strong downtrend for example, you will notice previous levels of support become resistance. 

 

The reasoning for this is that during a downtrend many retail traders attempt to buy during a downmove at what may appear as support. When the market continues to fall, this previous level of support contains many trapped longs who are looking to sell at breakeven. 

In the chart above, the rectangle denotes an area of support whilst the arrows denote when that support turned into resistance. An optimal strategy would have been to place offers at previous support as this would have led to the best selling opportunities. 

 

Additionally, take a look at how weak the buy volume was relative to the sell volume after the downtrend began at 8 AM on the third day of the month above. The sellers were clearly in control. After this screenshot was taken, price sold down to a low just above 37000. 

 

In essence, this strategy utilizes two methods to target areas for where we can place our bids and offers. First, looking for high volume points where it’s likely that many traders had entered. Second, looking for previous points of support that can act as resistance during a downtrend or looking for previous points of resistance that can act as support during an uptrend. 

 

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