The Wolf Den #262 - Keep It Simple, Stupid!
Bitcoin Thoughts And Analysis
WEEKLY CHART
Still a few days left in the weekly candle, so too early to tell. That said, if it closes anything like now it would lean bullish. We have the 2 inverted hammers from weeks past, and now a potential hammer on this week's candle. This is a true reversal signal, with the long wick down and green small body on top. The higher it closes, the better at this point. This would require confirmation from another bullish candle next week, so hard to get too excited now. Either way, this week is showing that there's definitely demand and buying coming in.
DAILY CHART
The daily chart still looks like consolidation and indecision. The pennant we were watching is long since invalidated, so now we are really ranging. We can draw a new descending resistance based on yesterday to give us an idea of what may be happening, so a break through that would be encouraging. It seems the El Salvador news etc has been absorbed which helped bring price off of the lows. Now we need some more volume and buying to take it to the next level - hopefully an eventual test of 42K. For now, the trend remains down and any consolidation on decreasing volume after a major drop is considered more likely bearish than bullish consolidation unless we get a clear move on volume up. I have no idea what will come next, the picture is muddled and the chart is difficult to trade.
42K is still the key level.
As looked likely, hidden bearish divergence has now confirmed and canceled the latest bullish divergence with RSI on the daily. That said, we often see hidden divs invalidated by further price appreciation, so I will still be watching for a move above the black line to make this happen. For now though, does not look ideal.
Legacy Markets
AMZN (AMAZON)
Quick update on the setup from a few days ago, as Amazon continues to move well. I am watching for a test of the range highs after this massive weekly candle that is likely to confirm. I hope you managed to catch it a few days ago, but still has room to grow. Beautiful test of the 50 MA and range EQ as support.
I believe Amazon is a great long term investment, which is how I approach it.
Trading With MACD 101
Since I have been sharing Bitcoin charts with MACD on them this week, I thought it was an ideal time to share a lesson on trading with this indicator from my own mentor, Chris.
Written by Christopher Inks
The MACD indicator, which stands for Moving Average Convergence Divergence, is a trend-following momentum indicator that belongs to a specific family of indicators known as oscillators. This means that it can be helpful in a trending market but not much in a ranging market since the indicator is designed to fluctuate between low and high bounds. As a matter of fact, a trader is more often going to lose money attempting to use the MACD in a ranging market than not.
It can be used to determine overbought and oversold conditions, determine the market’s momentum, and even to identify divergences that lead to reversals. It is also important for traders to understand that the MACD is, for the most part, a lagging indicator meaning that it tends to tell you what has happened which is useful in confirming a trend. But, as with most things, there is an exception and that is when using it to identify possible trend reversals. In this latter case, it can be viewed as a leading indicator.
How is the MACD Calculated
The Moving Average Convergence Divergence indicator is made up of the MACD line, the signal line, the zero line, and a histogram. By default, the MACD line is calculated by subtracting the 26 period EMA from the 12 period EMA. The further these two EMAs pull apart the higher the MACD line rises while the closer they come together the lower the MACD lines declines. The signal line is the MACD’s 9 period EMA and is plotted on top of the MACD to be used as a buy or sell trigger. When the MACD line is above the signal line the market is trending upward and when the MACD line is below the signal line the market is trending downward.
The zero line is the indicator’s equilibrium. This is the area of the indicator where the histogram fluctuates between positive (green) and negative (red). When the MACD is above the signal line it indicates that the market is more bullish. Conversely, when the MACD is below the signal line it indicates that the market is more bearish.
MACD’s histogram provides a visual for the distance between the MACD line and the signal line. As the MACD line pulls away from the signal line, the histogram expands. It then contracts when the MACD line pulls closer to the signal line. This can help traders identify when bullish or bearish momentum is increasing or decreasing. The histogram will be above the zero line when the MACD is above the signal line and below the zero line when the MACD is below the signal line.
How to Profit with the MACD
So how do we use the MACD to make money? As already mentioned, one way is to determine whether the market is more bullish or bearish by noting if the MACD is above or below the zero line. Another way is to determine whether the market is trending bullishly or bearishly. If the MACD is rising, then the market is understood to be trending bullishly and if declining then it is trending bearishly. But because this is lagging information, traders should not expect to use the MACD indicator in this way to buy the absolute lowest price or to sell the absolute highest price.
A third way to use the MACD indicator is to buy the asset or security when the MACD line crosses above the signal line (positive crossover) and to sell it when the MACD line crosses below the signal line (negative crossover). Again, traders will not be buying the absolute low or selling the absolute high, but the crossover can act as confirmation for an entry into, or exit out of, the market. The stronger the trend, the better this technique works. The positive crossover is most effective when it occurs below the zero line. The negative crossover is most effective when it occurs above the zero line. But the weaker the trend the more likely the indicator is to give false signals.
Divergences are a fourth way to use the indicator. Used in this way, the MACD becomes a leading indicator rather than lagging one. What traders want to look for are divergences between the indicator and price action. If price is making a higher high while the MACD is making a lower high, then that divergence may be signaling that the price is nearing a point where price will be reversing lower. And if price is making a lower low while the MACD is making a higher low, then that divergence may be signaling that price is nearing a point where it will be reversing higher.
Finally, traders can use the MACD’s histogram to signal when to enter or exit a trade. As with the divergence technique just described, if price is making a higher high but the histogram peaks are making lower highs, then traders should be prepared for price to reverse lower. And if the histogram troughs are making higher lows while price is making lower lows, then traders should be prepared for price to reverse higher. This divergence is often seen sooner than the MACD line and price action divergence thereby giving traders more of a heads up.
As with all indicators, the MACD should not be used as a trader’s sole reason for entering or exiting a trade. Higher confidence is found in confluence. This is when a trader combines multiple trading techniques or analysis thereby increasing the likelihood that the signal is legitimate. If the MACD provides a signal, traders are best served by looking at other indicators or candlestick patterns, for example, to see if they are also giving the same signal. The more confluence a trader has with a signal, the more likely they are to complete a winning trade.
For more information like this and to interact with Chris on a daily basis, join his Discord and take his course! - https://howtotradetowin.com/
IMF Raises Concerns Over Bitcoin As Legal Tender
After the recent excitement of the El Salvador news, it was only a matter of time until a major governing authority stepped in to try to crash the party. The IMF’s official comment was, “adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis.” Bitcoin can't be stopped due to its very nature. International organizations can punish countries for adopting it, but they can't stop the network. It is hard to imagine the IMF intervening for any good reason with a developing nation (El Salvador) adopting an open-source, immutable, hard money that promotes freedom. Bitcoin will win - it cannot and will not be stopped.
Texas Supports Cryptocurrencies
The intersection between governments and ownership of assets is a very thin line. Texas seems to be finding just the right balance and is doing so now with cryptocurrencies. Back in 2015, Governor Abbott signed a bill into law to introduce the nation’s first state-run gold depository in Texas. Effectively, citizens could entrust their precious metals into a government-protected facility rather than their own home or preferred private institution. Just yesterday, a similar bill passed allowing Texas state-chartered banks to provide customers with virtual currency custody services.
This clearly will not be for everyone. I often preach not your keys, not your coins, but this does not mean that mantra works for everyone. For older folks, maintaining custody of their own crypto just isn't feasible, plus some people won't ever consider holding anything of value unless it is secure in a bank. On top of that, whales that own very large amounts of crypto sometimes choose to trust someone with some of their coins. Self custody of billions is a dangerous game. Being your own bank becomes substantially harder with every “0” you add to your net worth. Freedom isn't always about doing everything on your own, it is also about your ability to choose from reasonable options that best suit you. Texas is ahead of the cryptocurrency curve and other states will eventually follow.
Environmental Concerns Are Holding Back Trillions
According to Kevin O’Leary who says he talks to institutions every day, “institutions are not going to buy Bitcoin until this ESG issue is resolved. Period. There’s no flexibility. They have no choice. They’ve already decided that they are going to stay within the covenants of their ESG committees.…That’s where I think we’re going. And if that happens that way and the institutional log jam opens up, and that capital starts coming – in which, by the way, is in the trillions of dollars – I see Bitcoin outperforming the stock indices for a very long time.”
If true, it is somewhat amazing that regulatory agencies and the government have managed to scare corporate money from flowing into Bitcoin due to lies. I don’t believe the government’s main concern is about the environment, but rather the entire soap opera is about a monopolizing agenda for the dollar. Slowly and steadily, Bitcoin is becoming a bigger and bigger topic that more politicians are picking up on. The good news is that Bitcoin’s mission does not fall on either side of the political aisle, hence politicians on both sides are supporting (and fighting) it.
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions. Code Wolfsden50%off for a 50% discount on the first month.
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: WOLF25
I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.