Rare Bitcoin Signal Looks Explosive

May 22, 2023

IN TODAY’S LETTER

What we cover: What the REKTelligence Range Indicator says about Bitcoin. Bitcoin’s 10-day price range suggests a big move. Stats for 2011-Now as well as Average Gain stats over the past 5 years. Bitcoin’s 20-month MA overhead.

TODAY’S STATS

Bitcoin’s Incredibly Narrow 10-day Range Looks Explosive

Bitcoin has now coiled into its narrowest range in weeks as the 10-day range of closing prices fell to below 2.5% over the weekend. For those new to technicals, this means that the difference between the highest close and lowest close of the past 10 days has stayed within a very narrow range, with little price change from one’s day’s close to the next. The REKTelligence Range Indicator shows this clearly in the chart below, reflecting the narrowing price action highlighted in yellow. Experienced traders know that this type of narrow price action often precedes a dramatic expansion of range. In other words, get ready for Bitcoin to move, and move big. With this in mind, let’s take a look at the stats to put this idea to the test.

`BITCOIN (BTC/USD). Daily Chart with REKTelligence Range Indicator.`

Our first query is simple: how has Bitcoin performed historically when its 10-day range of closing prices falls to below 2.5%? We’ll first look at a simple “sell 90 days later” scenario before looking at various holding times.

OUR BITCOIN QUERY'S SETUP CONDITIONS:

CONDITION 1: Bitcoin's 10-day range of closing prices <= 2.5%


ENTRY AND EXIT CONDITIONS:

1. ENTRY CONDITION: Enter long ("buy") at the open of the next daily candle
2. EXIT CONDITION: Exit ("sell") 90 days later

Here are the results using a 90-day hold:

`BITCOIN (BTC/USD). Query Results for BTC with a 90-day Hold. 2011-Now.`

The eleven historical occurrences have been profitable an impressive 81.8% of the time with an average trade of +105% over just a 90-day holding period from 2011 through the present. In short, historically, Bitcoin has doubled in 3 months on average following this type of narrow price range. The Profit Factor of 15.32 means that the sum of all hypothetical gains is over 15 times the sum of all hypothetical losses, an impressive metric. Looking at just the past 5 years - which includes two vicious bear markets - the more recent four historical occurrences have been profitable 75% of the time with an average trade of +22.6% with the same 90-day hold. Less eye-popping, but few traders would argue with a +22.6% gain in just a few months.

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Now let’s look at Bitcoin’s results for Average Gain and Average Loss across various holding times ranging from 7-days to a year. Note that the Win % shows how many trades were profitable, hypothetically speaking.

`BITCOIN (BTC/USD). Holding Time Results for 10-day Range <= 2.5%. 2011-Now.`

The first thing to stand out here is that the average loss for all holding times from 7 days through 60 days does not exceed -20%. In other words, the downside expectation based on this history appears rather limited, especially when you consider the volatile nature of the asset. Looking at the Win % stats for the same holding times, we see that the odds favor a profitable outcome. Even better, the further out in time you go the better the chances of a positive outcome, with a 90-day hold being profitable 82% of the time, historically speaking. The takeaway? Narrow prices for Bitcoin have historically seen a positive edge. Get ready for potentially explosive price movement, and soon.

THE TECHNICAL VIEW

Bitcoin’s 20-Month Moving Average Remains A Concern

Our most recent Technical View stands (see last week’s comments below), and we can now add the positive edge of the 10-day narrow range to the picture. Bitcoin is set to move soon and potentially attack the Supply Zone overhead. While a downside break remains a possibility we must consider, the odds do not favor it. That said, the best bull periods for Bitcoin have always taken place above the 20-month moving average, and we still remain below that key average. Traders and investors should consider watching this key moving average closely. A monthly close above it would be cause for celebration, while continued slog below it remains a concern.

While there’s no change to our intermediate-term outlook that the 28,750 to 34,800 Supply Zone continues to pose an obstacle to further upside attempts, the short-term picture may now be improving with the potential formation of a classic Bull Flag pattern on Bitcoin’s daily chart. Further consolidation inside of the upper and lower boundary may eventually lead to an upside breakout attempt and a close back above the psychologically important 30,000 level. If this scenario plays out, we’d see yet another attempt to move through the Supply Zone, arguably equivalent to another swing of a wrecking ball. With enough swings at the 28,750 to 34,800 Supply Zone, Bitcoin may just bust through. Beyond the chart, the “Halving vs. Recession” debate remains the central narrative tension dominating Bitcoin at present. The good news? As the current wall of worry for crypto grows, the Bitcoin bulls may be getting ready to scale it. [REKTelligence Report, 5/17/23]

`BITCOIN (BTC/USD). Monthly Chart with 20MA.`

THE TLDR

A Few Key Takeaways

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✔ Get ready for Bitcoin to move, and move big
✔ Historically, Bitcoin has doubled in 3 months on average following this type of narrow price range
✔ There’s no change to our intermediate-term outlook that the 28,750 to 34,800 Supply Zone continues to pose an obstacle
✔ We still remain below the 20-month moving average - a concern

peace_love_crypto

-DB

IMPORTANT DISCLAIMER

The information presented and made available in this newsletter is intended for educational purposes only. THE INFORMATION IS NOT AND SHOULD NOT BE CONFUSED WITH INVESTMENT ADVICE AND DOES NOT ATTEMPT OR CLAIM TO BE A COMPLETE DESCRIPTION OF ANY SPECIFIC COINS, TOKENS OR MARKETS OF ANY KIND, BUT RATHER EDUCATIONAL EXAMPLES OF THE APPLICATION OF TECHNICAL ANALYSIS AND QUANTITATIVE ANALYSIS TO THE MARKET. This information has been presented and prepared without regard to any particular person's investment objectives, financial situation and particular needs because as individuals come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek advice from your investment advisor or other financial professional as appropriate before taking any action. The opinions and analyses included herein are based on sources and data believed to be reliable and are presented in good faith, however no representation or warranty, expressed or implied is made as to their completeness or accuracy. It is imperative to understand your investment risks since all stock investments involve significant risk. The user of REKTelligence’s newsletters, podcasts, courses, coaching and other educational services agrees to indemnify and hold harmless REKTelligence LLC from and against any and all liabilities, expenses (including attorney's fees), and damages arising out of claims resulting from the use of this educational content. REKTelligence LLC is not a licensed investment advisor.