Looking to confirm market psyhocology reversal from BEAR to BULL
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Markets are dominated by psychology, and this can easily be seen in price action when there are either good news or bad news for an asset. The majority might not really care about the news itself, but they will try to predict other people caring, and make their move on this. Some other people will then see a small move in the direction of the news and FOMO into that movement believing the news impact (which, in essence, is not wrong). Markets always move in packs of bulls or bears, with a few bulls/bears going the opposite direction trying to time the reversal for major profits.
So, how does one "time" the reversal? Usually, buying into weakness and selling into strength is the best way to do so, but you might end up getting trapped as the market continues moving in the direction opposite of your move.
As said before, the market is dominated by psychology, so the only way to anticipate a strong move is to measure the hype and the price numbers, while also keeping an eye on volume to determine if the current trend is confirmed by the majority or not. A very good example of reversal was when Bitcoin touched $20,000.00. It was in an unprecendeted FOMO hype-wave, and had all the characteristics of a speculative bubble run. From 1k to 5k it took almost 8 months. From 9k to 20k it took barely 2 months, with a jump from 9k to 12k occurring almost in the same day because the hype was so strong. You could read up anywhere and people would be talking about Bitcoin as if it was a godsent asset, unbeatable, like it would never drop and reach millions on that very same rally. That was the overall sentiment.
And then the price reached 15k, then 17k, then it touched 20k. 20k is a "psychological attractive number" to make moves on. As the market was going up, it was a good place to make a move on the opposite direction, meaning selling/taking profits. This caused the hype to start losing strength, and late-buyers started to see profits slow down/be neutral/be negative. Smart money started to get out, and a small selloff ensued. The price crashed to about 16k. "Buy the Dip" mentality ensued, and price jumped back to 18k, which was the first bull trap on the bubble popping. Another selloff ensued, since price didn't seem to be stable. The late buyers started to worry and started to get out, ensuing another sell off. And then the bubble popped. Crashing all the way to 9k, a huge "buy the dip" mentality took place, and price went back to ~13k, which was another bulltrap on the bubble popping. And then price kept slowly crashing, all the way to 6k. A few other bulltraps ensued, price managed to jump back to 9k, but didn't hold as people were still trying to get out of a bubble popping asset. Fear took place, and price stablized for days in the 6-7.5k range. A short squeeze took place, and price jumped from 6.8 all the way to 8.2 in less than five minutes. This started a rally and price is currently stable at ~8.3k, being volatile from 7.8k to 8.5k.
I'm currently trying to determine if is this the start of a bullmarket, or is it yet another bulltrap. So how do I do this:
Overall sentiment is the most important aspect. Validations will only confirm a change in trend. The majority of people seem to be agreeing in a trend reversal right now. Buy markets percentage are at end of December/start of January levels (meaning 90% of market orders are buy orders). This is just a few weeks after a short squeeze took place, where the majority of margin orders were betting on the asset to drop in price, and a small move in the opposite direction caused stop-losses triggering and completing buy orders, starting an "automated" rally. This rally could have been the very start of the long awaited market reversal. As of writing, this is nothing more than a bulltrap on a lower-high.
So, how does one "time" the reversal? Usually, buying into weakness and selling into strength is the best way to do so, but you might end up getting trapped as the market continues moving in the direction opposite of your move.
As said before, the market is dominated by psychology, so the only way to anticipate a strong move is to measure the hype and the price numbers, while also keeping an eye on volume to determine if the current trend is confirmed by the majority or not. A very good example of reversal was when Bitcoin touched $20,000.00. It was in an unprecendeted FOMO hype-wave, and had all the characteristics of a speculative bubble run. From 1k to 5k it took almost 8 months. From 9k to 20k it took barely 2 months, with a jump from 9k to 12k occurring almost in the same day because the hype was so strong. You could read up anywhere and people would be talking about Bitcoin as if it was a godsent asset, unbeatable, like it would never drop and reach millions on that very same rally. That was the overall sentiment.
And then the price reached 15k, then 17k, then it touched 20k. 20k is a "psychological attractive number" to make moves on. As the market was going up, it was a good place to make a move on the opposite direction, meaning selling/taking profits. This caused the hype to start losing strength, and late-buyers started to see profits slow down/be neutral/be negative. Smart money started to get out, and a small selloff ensued. The price crashed to about 16k. "Buy the Dip" mentality ensued, and price jumped back to 18k, which was the first bull trap on the bubble popping. Another selloff ensued, since price didn't seem to be stable. The late buyers started to worry and started to get out, ensuing another sell off. And then the bubble popped. Crashing all the way to 9k, a huge "buy the dip" mentality took place, and price went back to ~13k, which was another bulltrap on the bubble popping. And then price kept slowly crashing, all the way to 6k. A few other bulltraps ensued, price managed to jump back to 9k, but didn't hold as people were still trying to get out of a bubble popping asset. Fear took place, and price stablized for days in the 6-7.5k range. A short squeeze took place, and price jumped from 6.8 all the way to 8.2 in less than five minutes. This started a rally and price is currently stable at ~8.3k, being volatile from 7.8k to 8.5k.
I'm currently trying to determine if is this the start of a bullmarket, or is it yet another bulltrap. So how do I do this:
Overall sentiment is the most important aspect. Validations will only confirm a change in trend. The majority of people seem to be agreeing in a trend reversal right now. Buy markets percentage are at end of December/start of January levels (meaning 90% of market orders are buy orders). This is just a few weeks after a short squeeze took place, where the majority of margin orders were betting on the asset to drop in price, and a small move in the opposite direction caused stop-losses triggering and completing buy orders, starting an "automated" rally. This rally could have been the very start of the long awaited market reversal. As of writing, this is nothing more than a bulltrap on a lower-high.
Note
However, one thing must be considered. Even though the downtrendline from ATH was violated (for the second time now; first violation ended up being a huge bulltrap on March 1st 2018), the market buy order percentage seems to indicate a reversal, as does the liquidation of the majority of sellers when the short squeeze took place. This means the majority is agreeing its time to buy, and this might be the new psychology in the market.Sellers might still be interested in letting this run its course so they can get a better short entry. I expect huge resistence/reversal at the 10k price point ("attractive number theory"), which will only fail as support/reversal if the hype was build up enough to trample that again, as Bitcoin did during the jump from 9k to 12k. I don't expect the hype to be this strong, as people are probably still doubting the asset's market reversal, deep down. People that changed their minds easily from majority shorting to majority buying are likely to change their minds again at the first sign of trouble, and it will ensue a selloff.
Other than "Attractive number theory", 9.25k showed resistence early on (on March 21st) and it could also trigger a reversal and put us back on the bear market psychology.
A revised downtrendline from ATH says price needs to close on a green candle over 8.5 by April 23rd, preferbly over 8.7k to confirm a break from the new downtrendline.
So in essence, the prices to be watched are: 8.7k by April 23rd; 9.25k at any time. 10k at anytime. If there is no reversal putting us back in a bearmarket psychology at these 3 times, one could be sure of a validation of the reversal. By then, next point would be short-term resistence at around ~11.2k
Last observation point: Downtrend line (red) and support line (blue, at ~6.3k level) will meet by June (unless theres need to either revise support/downtrend of course), and could be signaling a falling wedge in a downtrend. A break upwards on said wedge (which could be happening by April 23rd if price closes above 8.5k) would be a bullish sign. Said wedge needs to have a strong volume to confirm it.
My moves: As I'm still bearish while market looks to confirm a market trend reversal, I'm still expecting a drop putting us back in bear-market psychology.
- Short position open at 8.6k, stop-loss at 8.85k, open at any time from today to April 24th, expecting the bounce downwards.
- Short position open at 9.25k, stop-loss at 9.7k.
- Short position open at 10k, stop-loss at 10.5k.
- Long position open at 6k, stop-loss at 5.2k.
If all these short positions fail, I will be convinced of a market psychology reversal, and the hype will start taking place, people will start FOMOing in (me included), and it could very well be the start of a new accumulation phase in a new bull market, with the smart money having predicted/headshotted this at 6.5k price levels.
Disclaimer: I am a BEGINER at trading. DO NOT take this as finantial advice, just as informative advice.
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