Chart School – Consolidation and Reversal

Something interesting is happening in the Bitcoin Gold market right now.  Yesterday there was a massive move up above $382 after a temporary bottom formed near $320.  Since then the Bitcoin Gold market has given up most of those gains, but what’s interesting is how it has done so.

Look at the chart below and you’ll see what I’m talking about.  Let’s start with yesterday’s breakout.

BTG 1.png

It’s hard to miss the big green par on the left side of the chart.  This is an hourly chart of Bitcoin Gold (each bar represents an hour’s worth of trading).  Not shown is the downtrend that occurred over the previous few days.  There are three things to note about this bar:

  1. It is a classic two-bar reversal,  closing above the last down bar in the trend.
  2. There are long tails on the candlesticks on both it and the previous bar indicating buyers coming in to support the price far above the bottom.
  3. The volume below $340 is high, supporting the idea that there weren’t a lot of sellers below $340.  And a moderate amount of volume was needed to support the price.

Once the bottom was marked the sellers lifted their offers and the price easily moved up $50 over the course of an hour.

Now, as the great comedian Ron White is known to say, “I told you that story so I can tell you this one.”

What’s happened after that is the next 17 hours of trading (to this point) has occurred within range of the Big Green Bar.  

And during the last hour we got a move up that is considered a one-bar reversal of the downtrend but it did so on weak volume and only touched the downtrend line that traders are using to define their entry and exit points.

As I’ve said in multiple Private Blog posts, the crypto markets are dominated by retail and semi-professional traders.  They are using fibonacci retracements and extensions to set their buy and sell points.  For now, these are self-fulfilling prophecies in these markets.

And, as such, I lay them out for you even though I don’t take much stock in their use.  Instead I prefer simple bar comparisons and volume analysis to suss out the sentiment of the market and where substantive changes in in occur.

Right now, Bitcoin Gold is getting ready to break through the downtrend line to the upside and rejoin the general Bitcoin rally.  The reversal bar from earlier this morning shows this.  The lack of producing a new low that comes close to challenging yesterday’s low price also tells you that sellers are scarce and simply shaking the weak hands out of the market.

Chart analysis is one-part math and two-parts psychology.  It’s why there is no trading system that can print money in markets.  Being able to read the market psychology at a glance is a skill that comes only with time, attention and failure.

And once you’ve figured out what you think the psychology is you still have to make your bets based on the probability of success as there are no guarantees.  For this trade in Bitcoin Gold I would place a buy stop on an hourly close above $350 and a sell stop at $325.

Why would you wait for a move above $350 and not buy now?  Simple, if the hour closes above $350, your odds of the trade going your way improve mightily as the market confirmed that the supply of buyers was enough to push through resistance.  Sellers will lift their offers and buyers will have to chase the price higher.

If you buy early, then you are literally gambling on a spin of the roulette wheel because the market is still uncommitted at this time.

The next lesson is to discuss time and how we then apply this same analysis to a larger time frame to get a different picture.  I refer you to this post from late September to get an idea of the fractal nature of time in price charts.

UPDATE (9:39 EST)

BTG 2.png

The downtrend line continues to hold sway.  A couple of violations to the upside but without a closing price above the line means any breakout is still unconfirmed.  

Moving out to the 4 hour chart there’s an even bigger version of the same pattern still in effect… and any confirmation to the upside could result in an explosive move up over the next 48 hours.

BTG 1.png

It could come with a headfake move down to the $320-$325 region first, however.  But, right now this $350 price point is looking like the make or break area for a breakout this morning.


Posts like this are a regular feature of my Private Blog which you can subscribe to at my Patreon for just $4/month.  There you can also step up to the $12/month level to get access to the Gold Goats ‘n Guns Monthly Investment Newsletter where I distill all of this into a single monthly investment thesis and model portfolio of assets. 

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