Bitcoin Analysis: Week of Aug 3 (Intro to Candles)
Next part of the Tony Vays' guide into Bitcoin price chart analysis.
In last weeks post we concluded with the following statement:
Our charts are conflicting; the shorter daily chart is implying continued bearish pressure, as the bullish trend line was broken this week. The longer-term weakly chart on the other hand is not suggesting anyone should panic just yet. Watch for a pull back to the US$500 to US$530 zone while still keeping your eye on the target of US$750. Once one of these zones is approached we would look to re-evaluate the situation.
Today we will see if we need to re-evaluate this view going into next week. First let’s take a look at the latest weekly chat:
The grey boxes indicate the fact that changes have been made to the wording. It is unfortunate that many technical analysts make changes to their charts without informing the readers what they were. It can give the impression that they had it right all along and this series has no intention of doing that. It is simply another tool to gage the critical pricing levels through the mind of a trader.
Please notice that the green ‘up arrow’ has been removed. This is not a concession that the price is only expected to go down, but it is an indication that we are no longer looking at US$750 as the immediate target, unless we get back into the area of last week’s rejection zone (US$625-650).
Education (Intro to Candlesticks)
For those with trading experience, feel free to skip this part and jump straight to the next section, but we will be adding these short educational bits to get all readers more familiar with the concepts in these charts. The basic principle that everyone must understand is of course Candlesticks.
For the charts we use in this series, the clear (White) candle from the picture above is displayed in ‘Green’ and indicates that the price closed higher at the end of the week (or day) then when it opened. Likewise the shaded (Black) candle from the picture above is displayed in ‘Red’ on our charts and indicates that the price closed lower from when it started for that time period. The ‘shadows’ indicate the extremes for that time period and make it clear what the high and low prices were.
These candles do more than simply provide the snapshot of the action that took place during the day (or week) they also display patterns that some traders use to spot reversals in trend. For the record, in the Equity and Commodity world, this trader’s favorite patterns are Shooting Stars for bearish reversals, Hammers for bullish reversals, and Doji’s, which can indicate a general reversal since they are often symmetric. The jury might still be out as to whether these candle patterns are helpful in the Bitcoin analysis, but we should definitely keep them in mind when looking at charts.
Fundamentals (aka News)
This section was expended upon in last week’s article where we categorized Bitcoin news into 5 groups. Unlike last week, which brought us big news from Dell and out of government offices in NYC, this week was much less eventful. Other then Wikipedia officially excepting Bitcoin donations, which most saw coming, along with BitPay now offering free unlimited service to merchants and some trouble with a Bitcoin ATM in New Zealand, this was one of the least exciting weeks in a while as people are still digesting the implications of the NYC BitLicense fiasco.
For those that cannot keep up with the headlines, there are two weekly round-ups I like reading at the end of the week to make sure there is nothing big missed. One is a newsletter from Brave New Coin and the other is a weekly review by Jake Smith.
It’s hard to know what affect news will have on price. On the one hand, big companies like Dell and Expedia accepting Bitcoin gives great recognition while on the other it might mean that more people will use their bitcoins with companies that immediately exchange them for fiat currency leading to some selling pressure.
Thursday’s reversal was critical because it looked like the price of Bitcoin was certainly on the way to our US$500-530 zone. It is still looking like it’s headed there, which would not be such a bad thing. The long-term bullish reversal from early April will remain intact and so will the 5 month trend breakout in May. The chart above also has a few examples of Reversal patterns, keep in mind that these candles will be found throughout the chart with no significance.
There are two things to stay aware of when it comes to looking at these patterns. One is that reversal patterns are only useful after a trend has been established (ex: a Doji after 9 consecutive up days) and the second is to remember that Bitcoin trading is a 24/7 market so some of the patterns would never form due to the lack of Gaps in the price.
Finally let’s zoom in a little and have a closer look at the current setup. Thursday’s Candle looks like a reversal and can almost be described as “Bullish Engulfing” but it requires confirmation so Friday is key. If the price can stay above Thursday’s high and make it above US$590 we might take a shot at that US$625-650 zone one more time. If not, then we are looking for more downside in the near future.
Our charts are conflicting once again, only this week it’s a bit in reverse, there is not much positive that can be seen in the weekly chart, but on the daily chart Thursday’s big day may just be the jump start people were looking for after two weeks of price declines.
Friday’s close will help guide us whether we can once again approach the 50% Fibonacci Retracement zone at US$625-650. The odds however slightly favor more downside into the US$500-530 zone. A reversal at those levels would be ideal but we will evaluate this possibility after it gets there. The hopes of seeing US$750 in the immediate future are on hold.
Reference Point: 2:30am ET, Bitstamp Price US$585
About the author
Tone Vays is a 10 year veteran of Wall Street working for the likes of JP Morgan Chase and Bear Sterns within their Asset Management divisions. Trading experience includes Equities, Options, Futures and more recently Crypto-Currencies. He is a Bitcoin believer who frequently helps run the live exchange (Satoshi Square) at the NYC Bitcoin Center and more recently started speaking at Bitcoin Conferences world wide. He also runs his own personal blog called