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Tuesday Inferno market report

Bitcoin has found support at the $7,800 level, but the medium-term direction is unclear.

 

In a strong finish to last week, bitcoin ended Sunday at $8,300 – very close to its year’s high. This unexpected close meant gains of around $1,200 for the week, about the same as the week before. This bullish move might take BTC up to the $9-10k region, but there are equally factors that suggest the momentum might be dissipating and it might finally be time for the correction.

 

Any parabolic move like we have just witnessed should lead to a pullback: the market is too over-extended and overbought, and there is simply too much risk involved in being a buyer. Traders naturally take profits, which results in at least a short-term dip. In this instance, the move up to $8,300 also describes a double top. At the very least, we have established clear resistance at $8,400, and it will take an extra push to break through that.

 

RSI on the 4h is drifting back to the median, 50, while on the daily it is only just dipping out of overbought territory. On the weekly, RSI is still above 70, also suggesting it is time for a pullback. While in a bull market, weekly RSI can remain above 70 for weeks at a time, this is the first time that it has touched 70 since the peak of the bubble in December 2017. It’s likely that this time, it will be a little more tentative – touching 70, backing off, and then pushing higher again. As ever, 2015 offers an interesting precedent (though history does not always repeat itself exactly). In November 2015, weekly RSI climbed above 70, dipped and then recovered above 70 again, ultimately then staying above 50 until the bubble burst.

 

That would be a good scenario here. Any market that overextends too fast is liable to turn bearish, and it is surprising that we have not seen a major correction yet – especially given the news that the SolidX-VanEck ETF has again been postponed. This was likely priced into the market, though there had been some expectation of a different outcome this time.

 

For now, we can see that the dips are being bought in the $7,700 range. On the recent crash, the 50-week moving average held. All this is bullish – but we need a push higher into the $8,500 range to confirm that. In the immediate term, sideways trading and consolidation would be positive.

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Beginners’ guide to dojis

No, they’re nothing to do with martial arts, but these candlestick formations can give your charting a kick-ass edge.

 

Chart candles come in all shapes and sizes, but there’s a certain kind that it always pays to know more about. Doji candles are a kind of candle with almost no body – that is, price opens and closes very close together. There may be long or short upper and/or lower wicks.

 

Dojis typically signal indecision or reversal in the market. The kind of doji, and where it comes in a trend, can strongly indicate where the market is likely to go.

 

For a full run-down of dojis, the different types and their significance, we recommend BabyPips’ pages on them. For now, we’ll whet your appetite by giving a specific example and explaining why it’s a big deal.

 

Bullish Hammer

Dojis can occur on any timeframe but we’re going to look at the one-hour chart for Friday 17 May. You can see the data range here.

 

You will immediately see the doji on this chart. It’s the third candlestick, and it’s what’s known as a Bullish Hammer Doji. You’ll see the short ‘body’ of the candle, with a long wick or shadow down. The candle is red, but this doesn’t matter much with dojis.

 

Here’s what it means. Within the space of that hour, sellers flooded the market, crashing the price of bitcoin by over $1,000. But buyers then rushed in, picking up cheap coins and pushing the price back up to where it started. You can see that the volume bar is high. Three times as many BTC changed hands in this one hour than for any other hour that day. This means the move was powerful and decisive.

 

What this all means together is that panic sellers were no match for the bulls. There was plenty of demand at the lower price, and so BTC bounced. This is a highly bullish candle, and a strong buy signal. You can see that the market stabilised quickly afterwards in the $7,000–$7,200 range, a thousand dollars higher than the bottom. Then it moved up again another $800.

 

The Bullish Hammer Doji showed where the bottom was, and the likelihood that bitcoin would not be dipping that low again in the near future. If you’d tried to buy the bottom of that move, it would have been like catching a falling knife. But if you’d bought the top of the doji when the hour closed, you still would have done very well out of it – and your risk would have been low.

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Sunday Inferno round-up

Welcome to the weekend, Infernites! This week we have seen yet more spectacular volatility on the crypto markets, but there’s plenty more going on. Here are our top stories from the week:

That’s it for now! Enjoy the rest of your weekend and we’ll see you again tomorrow!

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Bitcoin winning US-China trade war

The US and China aren’t doing so well out of it though.

 

So what happens when the world’s two largest economies pull out their financial weapons out of their trousers and start waving them around at each other?

 

Well, we’re finding out. It turns out that a tit-for-tat trade war with a major economic powerhouse is going to end in casualties on both sides, no matter who wins. The US might be drawing blood, but the process hasn’t exactly been painless. The stock markets are jittery, GDP growth is slowing, the dollar is having second thoughts and there are serious implications in the fact that it’s putting political pressure on the Fed to do something about it – not great for an organisation that’s supposed to be independent of government, for the very good reason that when there’s a conflict of interests between the ones who print the money and the ones who spend it, the result can be something like Zimbabwe.

 

China, meanwhile, is also feeling the pain. They’re devaluing their currency, the yuan, to make their exports more competitive. But here’s the thing. That means it’s worth less for all those millions upon millions upon millions of Chinese who earn it, save it and spend it on a day-to-day basis. So what do you do if you’re currency is dropping in value?

 

Yup. Sell it for something that’s not. And what if capital controls prevent you from shifting piles of cash offshore?

 

Yup, that’s right. You find a currency that’s immune to capital controls. Something decentralised, borderless and, not to put too fine a point on it, bitcoin-y.

 

With the yuan down 2% against the dollar in the last fortnight, that appears to be what’s happening. It’s hard to be sure because the People’s Bank of China banned bitcoin exchanges back in 2017 (and a few other times, as it suited them). But lots of OTC trading goes on over WeChat. The government tried to ban that, too, recently – but it’s easier said than done.

 

TL;DR China and the US have got into a competition that neither can win without hurting themselves, and bitcoin says ‘thank you’.

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Friday Inferno market update

Bitcoin has made its expected correction and bounced hard.

 

It was bound to happen, and it’s best to get it out of the way. We knew bitcoin had to retrace – the question was always how much.

 

In the event, it turned out that the crash sent it almost $2,000 lower. The final leg of that was a drop of $1,000 and a bounce from support right back up to where it started – all within the space of 30 minutes. The resulting doji candle was impressive, and price has stabilised in the $7,200 -7,300 region for now.

 

So, what next, now that the parabolic trendline has failed? We would expect a period of consolidation here, though of course another fall is not off the cards. The market has tested $6,200, which is right within the old support region from 2018. It may test it again, in which case we’ll be looking carefully at volumes (the last doji was on high volume, which is reason for confidence) and whether bitcoin puts in a lower low or a higher one this time.

 

If it breaks $6k, we might see a drop to $4,600 or even $5,000, where support lies. $4,200 would be support below that, but that would erase all the gains of April and May. To the upside, we now have $8k as resistance, and then a shot at $9-10k. It now looks like that may take some time as the heat has dissipated for now.

 

Zooming out to the weekly, bitcoin is still well above all the major moving averages, though it briefly dipped below the 50 WMA earlier today. The daily candle will be interesting; currently it is a red candle with a long wick down, and should it also close as a doji – price rising to perhaps $7,600 or $7,800 before midnight – we would consider that very bullish. In short, sellers didn’t have the confidence to keep going, and there were lots of buyers willing to pick up bargains below $7k.

 

We’re likely in for continued volatility, but for now, RSI no longer shows oversold on the higher timeframes and the demand for BTC was encouraging. The uptrend is still in force.

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Bitcoin buzz moves from past to future

Focusing on what crypto might bring, rather than its past, has sent prices soaring, suggests new research.

 

People are talking about bitcoin. They have been talking about bitcoin for a long time, of course, but the way they are talking about bitcoin has changed. A study by data provider Indexica shows how the conversation has shifted – explaining the stellar price rise in April and May.

 

Indexica’s analysis of thousands of documents showed ‘three main drivers: a more complex conversation surrounding Bitcoin, fewer concerns about fraud and a shift in the tense of how Bitcoin is talked about from the past to the future.’

 

That contributed to a major impact on bitcoin’s price, which has doubled over the course of this year and is currently consolidating in the $8,000 range. Simply, people are focusing less on bitcoin’s past, and particularly all the scams and hacks that have plagued the digital currency in recent years. Instead, they are looking to the future, and what the role – and value – of bitcoin might be in the years to come. Needless to say, that has had a huge effect, similar to the one seen the stock markets when so-called ‘futurity’ comes into play.

 

‘Think about it,’ says Zak Selbert, Indexica’s CEO. ‘Executives will speak of good things they expect to happen on conference calls before they happen. They only mention mistakes afterwards.’

 

Bitcoin’s uptrend is now into its fifth month – though the breakout was only confirmed six weeks ago. Last time around, the bear market took a year to play out, and was followed by a three-year bull market. The past won’t repeat itself exactly, but it’s reasonable to assume we might be heading into a multi-month uptrend, and potentially a two-to-three year bull cycle – powered by the halving in a year’s time.

 

Sentiment has changed, and crypto is coming back into fashion.

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What are Forks?

A fork is when a blockchain network changes its rules – but there are hard forks and soft forks, and which one happens makes a big difference.

 

Bitcoin runs on consensus. The decentralised network of miners agrees on the contents of the ledger – the blockchain – and makes sure that no one tampers with it. This alone is an amazing feat, and it enables peer-to-peer money. Previously, electronic cash always needed a trusted third party to keep accounts.

 

The network relies on the fact that everyone knows and enforces the same rules. But what if those rules need to change? Maybe there’s a security hole that needs patching. Or maybe the platform is getting a major upgrade with new functionality. That’s when you need a fork.

 

Soft and hard

In the crypto world, a fork is a change in the rules of consensus. But there are two kinds of fork: hard forks and soft forks. Soft forks are back-compatible. That means the network continues running as it was, no matter who has upgraded to the new software. Old and new versions continue to work seamlessly together. But with a hard fork, clients running new and old software are not compatible. They won’t ‘talk’ to each other. This is when you get a blockchain fork – two separate networks, with miners running different software.

 

Andreas Antonopoulos has described the difference between a hard and soft fork like this: If a vegetarian restaurant decides to add meat to their menu, that’s a hard fork: a change in the rules that is incompatible with their previous approach. But if they add vegan dishes, that’s a soft fork. Vegetarians could still eat there and enjoy the new vegan food, without having to change their existing habits.

 

A soft fork is far less disruptive to the network, because miners don’t have to upgrade to continue mining (even if it’s desirable for one reason or another). But sometimes a hard fork is necessary, especially if a security vulnerability needs fixing. And, of course, there are times when developers want to split the network with a hard fork. This is what Bitcoin Cash did when it changed the rules of consensus and split from the Bitcoin Core network. It’s also what Bitcoin Cash SV did when it split from Bitcoin Cash.

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Tuesday Inferno market report

Bitcoin is maintaining its recent policy of just not caring.

 

Many of our community will be suffering from oxygen deprivation as the G-force of bitcoin’s upward movement cuts off the blood supply to their brains. For those still conscious, here’s what’s going on:

 

Yesterday saw bitcoin soaring another thousand dollars, at one point topping $8,000 before closing slightly below. Today has seen the same action continue, with the price at the time of writing almost $8,300. (This is likely to go out of date fast.)

 

At every step since the beginning of April, we – in common with every other analyst – have expected a pullback, or at least a period of consolidation. It hasn’t happened, not for more than a few hours. Every resistance level has fallen, bitcoin slicing through them like a hot knife through butter on a warm day in the Sahara.

 

There’s little resistance to $10k now, which itself can only really be considered resistance as a psychological level. Given the strength of resistance at $6k and how long it should have taken bitcoin to break it, we can’t assume that any other resistance zone will prove a problem. We know that there must be a pullback sometime – there must be. But we can’t suggest with any confidence where that will be. Bitcoin has torn up the rulebook in the last few weeks, and conventional market patterns have been meaningless.

 

While a brutal correction ought to be on the cards – we’ve had no pullback since the dip to $5,000 in late April – we just don’t know whether it will happen here, at $10k, at $20k, or higher. Once we top $11-12k, there’s very little in the way of resistance at all, just clear blue sky above.

 

As good as it’s been for bitcoin, it’s been bad for the alts. They have suffered badly in BTC terms: no one wants to be out of BTC here. Most have held level in USD value, at least. When bitcoin finally pauses we might see the fabled Alts Season, but again – we can’t know when that will be.

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Beginners’ guide to moving averages

They’re one of the most commonly used trading indicators. But how can you use them to get ahead?

 

Bitcoin’s price moves up and down, often fluctuating wildly in any given trading period. Moving averages smooth out those ups-and-downs, giving traders a broader picture of what the market is doing.

 

For example, You might take a 100-day moving average. This is the average of the closing price (i.e. the price at midnight) for each of the preceding 100 days. You can plot the 100 MA line on the same chart as bitcoin’s price, and compare where the price is against that average every day.

 

Or you might take a shorter MA, like a 50-period MA on the 4-hour chart. The idea is the same. The MA screens out the ‘noise’ and give a sense of where the price is compared to where it has been in the recent past.

 

Why are they important?

Moving averages are used in trading to give a sense of where the market is going overall – the trend. That might be the short-term trend – maybe on a scale of hours or even minutes – or the long-term trend, on a timeframe of many weeks or months.

 

For example, you may have heard that the 200 daily moving average is an important indicator on a long-term timeframe. It averages the price over the last 200 days, so that line on the chart gives a good sense of how the market is trending overall. When the price moves above the 200 DMA, it’s generally taken as a bullish signal: it means that price has broken above its long-term average.

 

Crossing MAs

Many traders take two moving average lines and wait until they cross to make a trade. 50 and 200 DMAs are a classic one (a ‘golden cross’ or ‘death cross’, depending on which way they cross). When the 50 DMA crosses up over the 200 DMA, it shows that recent market sentiment is more positive than longer-term sentiment.

 

Traders use the same approach on all timeframes. So which MAs should you use? Well, that depends on your timeframe. There are no wrong answers here, though it would be odd to use the 100-week MA and the 50-hour MA, for example. 200 and 50 daily moving averages are a classic one for longer-term traders looking to understand the trend. On a shorter timescale, you might like to check out the 30 and 13 MA on the 4h chart. The best thing to do is to figure out your own timeframe – whether you want to make trades on a short-term or long-term basis – and Google around for a few prominent (and successful) traders to see what approach they take.

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Sunday Inferno round-up

Welcome Infernites! This week has been another good one, with bitcoin slamming through $6k and eyeing the next key resistance levels. Here’s our round-up of the week’s news and other articles:

That’s all for now. Have a great weekend and we’ll catch you on Monday!

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