BTC: leveraged trading games. Discussion & theory.

Greetings.

Anyone who remembers back when the BTC markets took a dive in November 2017 might be able to recall at that time i set up a "leveraged trading playground" band that we would be playing in for some time. For reference here are the levels that i indicated.

Back then i called the green line the "mid line" and i assumed we would actually be going sideways from that point and then waving between 5300 and 3500.. However i see now that my fault was i expected the period of uncertainty to find the bottom later rather than earlier. Looking back i see that the market went near full capitulation and then started from the bottom up... And it would make sense to shake out volatility early in the new region and then go stable and start extracting liquidations after a period of sentiment recovery.

It is very easy to see that is the meek moves of recovery and that the candles are very precariously hanging. And i want to take a moment here to relate that one of the core aspects of value derived from crypto is within its profit extraction mechanisms. Many clone coins pop up attempting to provided incentives towards producing some network and database behavior that is supposed to decrease the friction of handling the transfers of contracts, value, and identity. Yet all of these coins suffer from the same type of double edged sword in that if one is using technology that is inherently designed to decrease friction then the capturing of your value for your coin may inherently be difficult. A prime example is that of Mastercoin, the ICO that started it all. It's worth very little now in comparison to the beginning... yet so much value has been made off it's back.

With that said i wanted to note here that trading, and extracting profit from market participants, is one of the REAL driving value extraction methods for crypto. I remember years ago, must have been 2012 or 2011, ranting about the death of the dollar and how the crypto would in essence slowly start siphoning out fiat value into crypto value. Traditional market analysts and people with knowledge of international finance will be quick to discard such a fantasy as the scale and scope of it is almost irrelevant and unnecessary (look how abstract the financial capital market already is)... However i think what is important to note is that crypto gains it's value, or at least expresses it's representation of value, by siphoning off fiat. And i do not mean AT ALL that crypto is based "off the dollar" and that it's just another layer on top of the dollar. I mean that the idea of value that exists within the dollar is absorbed into the crypto ecosystem and assists in reflecting the value of it.. similar to how the price of gold doesn't actually mean that the gold is "worth more" but that it can be seen as the weakness of dollar, rather.

Understanding as such... we cannot discount the power that price action has to cause profits to be extracted... and we cannot discount the power that these actors have to move the markets so as to induce scenarios to provided trading opportunity. We all know that over the past few months that not much new money has been coming into the exchanges. A lot of this time we have been feeding off of what already was (of course new money is entering in but not a fomo flood of fiat) and rising the total market cap through the buying and selling of Top coins and Alts... Not through a giant inject of fiat (and tether) onto the exchanges like what happened in 2017.

We consider the region indicated in the chart above as the "playground" region for the market manipulators within the bear market. We are still within the bear market is my point here, and yes only in crypto can you have a 20% candle for top coins and still consider it "potentially bearish"... I too was caught up in the idea that in summer 2018 we might experience a giant rebound and race back past 20k but then i started seeing how exhausted the funds were and how hard the traders were hit and how they could not continue. No fund of any large amount in its right mind could easily play those moves. I am a believer now that the next bull run will be much greater than 20k and thus we will need to observe a longer period of growth outside of this region to really consider it bull season.. For if you believe that the market purely moved up on positive sentiment alone, and without some hint of manipulation or at least knowledge of price level alteration, then i do believe you are sorely mistaken. And the power to go up represents the power to go down... and we can easily trend upwards into the 8000 whilst still capturing liquidations and juicy trades on movement between 5300-3500.

Looking briefly at the volume profile here we can easily see that we are currently on thin ice.

The main factor keeping this baby afloat is positive sentiment, not a strong support at this price level. This is a place of waiting... and unless we see a strong sideways develop out that can cause a good support to establish then i do believe we have quite a bit more chop to experience in our push towards 8000 + ... You can consider that the bear market is not over yet, but the bottom is in. We are starting to reach towards the end of the bear market and i believe we are perhaps half way through it, maybe more. But i am still seeing a lot of big shocks to come.

However lets disect a bit more what the market conditions currently may be for shorter time frame trading.

In the above picture we have selected out three domains with red rectangle . These domains are periods in which we can observe the wave structure inherent in the sentiment patterning. You can see that at first it was highly choppy and volatile... after which the amplitudes died down a bit and we settled into a pattern of more stability with smaller waves and longer periods of sideways. Well. I do believe that there are consequences for this large price spike upwards we have currently had... Yet we need to watch to see what the real case is.

1. In one case we have the option that this massive spike may have broken us out of the current wave forms we were experiencing lately... long periods of stability followed by "1-3% moves" that would keep the market trending upwards. We may have a period now of dramatically increased volatility as the market scrambles to make sense of these sentiment shifting moves.

2. Yet the other case is that we need to look towards the continuation of the prior pattern: stability will continue marching along from this level with only minor 3% swings taking place on the short term (multiple days)... which could easily see us push up towards the higher 5000s and 6000s soon. Perhaps even sooner than expected.

On the near term though (next few days) we could easily shoot into 5000s territory. The floating price right now is ripe for movement UP OR DOWN which we can easily see reflected in near equal short term pick ups of leveraged positions. However since i started this article the longs have really went vertical and increased which leaves me believe we will see 5000 fairly soon.

A few closing notes here:

If we drop down back towards 4000 on the short term we cannot easily know what type of scenario we will be in. We will need to wait until we see how the reaction to this extreme spike plays out.

If you are expecting a steep run up back to full bull mode though i want you to know that it is low chance. The bear market is not over yet. We need to clear out these longs and test the gathered bullish sentiment. They don't just get to get slammed freely and then rise again. There is one final test. We need what happened last night to happen after a large sell event, we need a bounce, before we can be certain the bulls are strong enough to pull us out.

In the mean time be careful in the alts. You saw how they all dropped nearly 20% when BTC pumped? well if we drop down back even to our safe 4000 level we will see potential drop in the alts in a similar fashion.

Never discount the power of the margin gain

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