Trend Analysis

Trends are typically more persistent than many trader’s perception of what will really happen in the future. This is because the market is in fact not entirely efficient. One glaring reason for this is the fact that BTC tends to trend opposite of where the majority of traders would like it to go. All too often, retail traders attempt to ‘buy the dip’ on a downtrend and then price continues to fall or traders think bitcoin has ‘topped out’ and sell far too early. It’s emotionally-driven retail traders that make the market inefficient and ripe for solid returns. 

 

Instead of relying on guestimation (guessing and estimation without proper basis for doing so), instead you can use probability and statistics to make far better decisions. Sections later in this course will cover how to utilize both of these concepts at a higher level. 

 

There are many different forms of market structure that can occur during a strong downtrend or uptrend. However, typically a strong downtrend will have strong downward moves with weak upward moves as well as only brief periods of consolidation. 

 

A strong uptrend will look like the inverse, it will have strong upward moves with weak downward moves as well as only brief periods of consolidation.

 

Prolonged periods of consolidation are typically an unhealthy sign for a trend, as when a trend flatlines for quite some time that shows weakness in the prevailing direction. 

 

 

Continuing from the above, let’s go over some typicalities involving the speed of a trend. 

 

  1. Rapid movement in one direction on a higher timeframe (such as 4-Hour or Daily chart) without pause (consolidation) or pullback typically leads to a continuation
  2. Significant pause and pullbacks showcase a large degree of weakness in a trend
  3. The swifter the move away from a new price zone, the stronger the reversal (typically looks like a V-shaped reversal when price makes a new low/high then reverses rapidly in the other direction)

 

To illustrate this third point, take a look at the chart below: 

Price trades down to just above 34000 and spends less than a day around there. This led to an uptrend that went up by 10,000 USD in less than a week. Rapid reversals such as this one showed just how strong the supply/demand imbalance was at that price range at the time. Moreover, notice that the largest amount of volume transacted was near the market bottom. 

 

You will never know with 100% certainty if a trend will continue or reverse. Rather, certain typicalities such as the patterns listed previously can allow for a higher probability of certain trends continuing/reversing. However, unlike higher-risk trading such as futures trading/margin-trading you can make a bad trade when spot trading and still be generating income or in profit in the near-future.

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