Why Bitcoin Traders Should Befriend the Trend

by · August 25, 2022

The impact of Federal Reserve policy and Bitcoin’s higher timeframe market structure suggest that the BTC price is not yet ready for a trend reversal.

Bitcoin (BTC) price continues to fall below the $22,000 level, and the broader narrative among traders and mainstream media suggests that a risk-off sentiment is a dominant perspective ahead of this week’s Jackson Hole summit.

During the three-day symposium, the Federal Reserve is expected to clarify its outlook on inflation, rate hikes and the overall health of the US economy.

Meanwhile, traders on Crypto Twitter continue to fantasize about a “Fed pivot” where interest rate hikes will be reduced to below 0.25 basis points and some form of monetary easing re-emerges, but the likelihood of the Fed adopting a dove point view is short-term seems unrealistic, given the central bank’s inflation target of 2%.

Regarding Bitcoin’s recent price action, an old saying among traders is:

“Beat the short-term trend in favor of the long-term trend.”

From a bird’s eye view, BTC price is in a clear downtrend with a four-month stretch of recurring bear flags continuing to see continuation.

Sure, the data on the chain suggests that the price might be at rock bottom.

Of course, aggregated volumes and certain chain data looking at whale and shrimp BTC addresses may point towards accumulation.

Yes, open interest in BTC and Ether continues to reach record highs, fueling the bullish ETH Merge and ETH proof-of-work hard fork tokens narrative that is triggering a juicy short squeeze on BTC and ETH.

Any of these things can happen, but beware the teller of those hopium-infused dreams and remember that the trend is always a good friend a trader can lean on.

As unpleasant as it may sound, the trend is down. Bitcoin continues to face resistance at its long-term descending trend line, and the price has failed to secure resistance at key moving averages such as the 20, 50 and 200-day MAs.

BTC/USDT Daily Chart. Source: Tradingview

Each price drop simply creates a flagpole, and the subsequent “consolidation” creates the flag of the bear flag continuation pattern. As the pink boxes on the daily chart show, the BTC price is simply trading within a defined range before breaking below it to underlying liquidity shown by the volume profile visible range and liquidity chart.

Essentially, there is “nothing to see here” until price paints a few daily candles reflecting higher highs, ie BTC needs to clear $25,000 and close the volume profile gap in the $25,000 to $29,000 zone.

From there, one will either want to see consolidation within the new higher area, or continuation of a trend reversal where the 20-MA and 50-MA act as support. As mentioned earlier, there are of course plenty of other data points that make a strong case for why the current price range is a buy zone, but what may be true for one trader is not necessarily true for all.

Some investors can afford to open swing longs here and lower and ride it out because they are flush and that is part of their plan. Others have a smaller wallet and cannot afford the lost opportunity cost of being locked into a red position for months on end. Traders are always encouraged to do their own research, create their own thesis and manage risk in a way that is best for their situation.

Jackson Hole is approaching and the Fed must continue raising interest rates until inflation and other metrics are under control. Equity markets remain closely correlated with the Bitcoin price, so the message will be whether the SPX and DJI continue to steam higher, or whether future actions by the Federal Reserve begin to put a damper on the recent bullish momentum.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.