ショート

BTC - The missing relation between Volume and Price

アップデート済

Preface
I'm neither a bear nor a bull. I've started doing research and can sum up one and one which should be two. But in my opinion for Bitcoin this is anything else but two for some time now.

Hello and welcome everybody,

please have a seat and take your popcorn and softdrink, the show has just begun. I know that the crypto market isn't regulated at all. I neither want to complain nor do i care. I just take it as it is and act upon the given general conditions. I don't claim that i've invented the wheel but all this writing is solely done by me and is a result of some research and to the best of my knowledge.

Now let's have a look at the chart and the indicators.

1. Volume Moving Average
The two data points of interest for the volume moving average (later referred as "VMA") in orange have been marked with circles. One is by mid of September 2017, the other one is the current week. The black dashed line labeled "VMA Level" aligns to both data points.

2. Volume Oscillator
The volume oscillator (later referred as "VO") shows the direction and the momentum of the volume. As long as the oscillator is below zero, the volume will decline.

3. Support Zone
This is the most important price range for the near-term future. It's composed of the low from the weekly candle of 11/06/2017 and the opening price of the next candle which was the starting point for a bull ending at the all time high (often referred as "ATH"). If this zone gets broken it will turn from support to resistance. The following things can happen:
a. A reversal, a succesful break of the resistance and a recovery above which will serve as support if it gets confirmed as such.
b. A reversal, an unsuccessful break of the resistance if it gets confirmed as such and price declining further.
c. No reversal at all but just price declining further.

4. Reality Zone
This is the range where the price was back in mid of september 2017 when VMA was at the same level as last week.

5. Volume Profile (VPVR)
This indicator shows the volume per price range. The longer the bar, the higher the volume in the price range of the bar. This indicator helps to identify levels of support and resistance. The blue solid lines mark a price range called "volume area" (later referred as "VA") which is composed of the upper blue solid line called "value area high" (later referred as "VAH) and the lower blue solid line (later referred as "VAL"). The red solid line is called "point of control" (later referred as "PoC") and marks the price range with the highest volume. All lines show the development of their respective values over time.

ノート

Analysis

ad 1:
The decline of volume and VMA confirms the overall downtrend since january 2018. VMA is declining mostly and rarely stalling, the volume bars mostly didn't even get close to VMA. So basically the downtrend gets confirmed just by looking at the volume. This very simple indicator should not be underrated. The bull runs we saw in april and july were backed up by slightly higher volumes which is indicated by volume bars being slightly higher. Nevertheless this had no sustained impact on VMA.

ad 2:
As you can see the oscillator is below zero since end of march/beginning of april. This is just a visualized confirmation for declining volume. Please ignore the last datapoint, the week has just begun.

ad 3:
The zone is composed of the lowest price of 11/06/2017 (5400) and the opening price of 11/13/2017 (5810). I call the zone boundaries "early support" (upper) and "ultimate support" (lower). Instead of a support zone some TAs use a support level which is near or inside the upper level of my support zone. That's totally legit but only a part of the truth. When we look at the candle from 06/18/2018 we can see that 5800 was pierced (maybe not on every exchange, i haven't checked that) but the price immediately reversed above it. This is an indication that the low of 06/18/2018 didn't trigger any, any more or not enough sells for a further price drop. The support zone is quite dangerous because prices within that zone will trigger sells for professional traders and algorithm trading bots (sometimes referred as "algo bots" or just "bots"). Opening short or long positions will surely have an impact on the price too but i'm gonna ignore that here to keep it simple. Since no one knows the selling parameters of professional traders and bots, the danger within the support zone raises exponentially after breaking the level of "early support" and as closer the price comes to the level of "ultimate support". It's not a question whether sells COULD be triggered, they WILL according to the selling-parameters. We just don't know at which levels the house of cards will start to collapse. Once the price doesn't stop declining and the selling volume exceeds a "critical mass", anyone who hasn't sold already will follow, driven by fear, lost confidence, doubts, uncertainty or plain panic. According to Andre Kostolany psychology is one of the main factors that drives financial markets (and by the way, he also invented the term "weak hands"). Once the house of card has collapsed, we will see hyper-accelerated sells (panic sells) until they get slowed down/stopped by buyers stepping in. The support zone/level might be lost by then (who knows?) and will become the next mayor overhead resistance to break.

ad 4:
Because there is a correlation between volume and price it's remarkable that the support zone still holds. We're in a clear downtrend which should print lower highs and lower lows. While we see lower highs, we don't really see lower lows. Well, we can see them if we ignore the wicks and consider them as "noise". The support zone holds everytime we come close to or even pierce it. I've seen some TAs with supersized bullish triangles composed of a horizontal level near or inside the support zone (some TAs use a downtrend which ignores a or some wicks being "noise" instead of a horizontal level) as the bottom and one of the downtrends as upper resistance. This might be legit, no one knows, but you shouldn't expect a bull run driven by a bullish wedge (or similar) where price gets squeezed by support and resistance or even earlier. Why? This clearly is IMPOSSIBLE without fresh money flowing into the market (=market cap rising) followed by a sustained rise of volume.

ノート

ad 5:
VAH confirms the downtrend. VAL hasn't changed since 01/29/2018 and is roughly at 5514 which is inside my support zone. PoC dropped from roughly 8300 (last week) to roughly 6480 (this week). Similar to VO, we have to be careful about or even ignore the latest data point since the week has just begun. Since mid of march BTC is in a downtrend as mentioned earlier but on the other hand BTC is trading (more or less) sideways in a channel composed of VAL as support and PoC as resistance. The resistance broke by mid of april but the prices reversed and came back into the aforementioned channel by mid of may where price action resides until now.

Conclusion

Quote: "In short, Volume is a critical factor in technical analysis. Any support and resistance level is not valid unless it is backed by adequate volume. Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa)."
Quote: "Volume is used by technical analysts to confirm trends [...]. The strength of any given price movement is measured primarily by the volume."
Quote: "Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout."

For some time price and volume just don't fit together. According to the relation between price and volume and the volume's historic data point, the price should/could/must be inside the price range labeled "reality zone" or even somewhere near. Declining volumes are an indication for loosing interest in an asset. Loosing interest means loosing demand. Price doesn't indicate this. It keeps going sideways in a channel with it's boundaries (PoC and VAL) narrowing down.

You might or might not ask yourself "why is that?". I haven't found THE answer (based on FACTS, not on indications) yet and maybe i'll never ever find it. Maybe and hopefully someone else will do. My research hasn't finished, i'm still working on some puzzle pieces which could be connected to a possible (but theoretical) scenario or motivation although it might be very obvious for those who follow the news. Just take this for now: One or more market makers with MUCH BIGGER stacks than yours is/are driving the price at their favor and to their advantage. Have you ever held shorts (or longs) that got squeezed and liquidated by the market maker/s? Ask yourself and think about. Traders play sleight of hands in the crypto market like in former times in other markets, before they got regulated. Trading in an unregulated market is like playing a game without rules. Everything, which is not forbidden, is allowed. Easy as that.

ノート

Another question is: "How long will the market makers drive the price when volume will decline further?". If they'll stop supporting the price my guess is, that the support zone will get broken like a hot knife going falling through butter. No one should try to catch a falling knife. Standing at the side lines, watching the show and waiting for it's end, is not the worst idea in a such a case (unless you know what you're doing).

There are some aspects i haven't covered in my analysis, like market capitalization or the percentage amount of base currency from the trading volume and probably many many more. Saying this, it would REALLY help and improve analyzing the crypto market if TradingView would add CoinMarketCap as a data source. Therefore i kindly ask you all to support the corresponding feature request i add in the comment section of my ideas. It just takes two clicks and should be worth the effort.

Final words

If you decide to expand the scope of my analysis with your own view please feel free to leave a comment or your own trading idea. You must not be thankful if you don't like what you read or disagree in parts or the whole. Be respectful when you decide to comment. I'm open for any discussion as long as it stays on topic. Anything beyond will either be ignored or even removed with the aid of the moderators if it's classified spam, trolling, insulting etc. But feel free to report such comments on your own (this applies to EVERY idea, not just mine). I've reviewed and adjusted this idea multiple times to get the best of quality and the least of errors. Please let me know if you see anything wrong/imprecisely.

Winston Churchill: "In wartime, truth is so precious that she should always be attended by a bodyguard of lies." (we're not war but the message behind is true and maybe a part of the truth for the current situation in the crypto market)

Thanks to Kacper Ciesla (and all contributors) for providing the services on bitcoinity.org
Thanks to all the traders on TradingView who share their knowledge for free.
Thanks to mctP for providing the link to bitcoinity's price/volume chart which was the inspiration for this idea.
And last but not least big thanks to SwissView for dramatically expanding and adjusting my view on the crypto market and beyond. From what i've seen so far and from my point of view your efforts for the community are second to none.

Thanks for reading and your support. I hope you enjoyed it or find it helpful at least. Good luck in trading for all of you.

Yours sincerely
Eddie

ノート

Sources:
How to Use Volume to Improve Your Trading - investopedia.com/articles/technical/02/010702.asp
Technical Analysis: The Importance Of Volume - investopedia.com/university/technical/techanalysis5.asp
Importance of Volume in Technical Analysis - sharemarketschool.com/importance-of-volume-in-technical-analysis/
Basics of algorithmic trading: Concepts and examples - investopedia.com/articles/active-trading/101014/basics-algorithmic-trading-concepts-and-examples.asp
Volume Profile - tradingview.com/wiki/Volume_Profile
André Kostolany - de.wikipedia.org/wiki/André_Kostolany (the german version is more comprehensive)
CoinMarketCap - coinmarketcap.com
SwissView @ TradingView - tradingview.com/u/SwissView/
Inspiration for this analysis -

No Way Out LII (52) - BTC an der letzten Support Line II

Bitcoinity's price and volume chart for Bitcoin - data.bitcoinity.org/markets/price_volume/2y/USD?r=week&t=lb&vu=curr
Tether Treasury Wallet - omniexplorer.info/asset/31
Latest noticeable transaction out of the Treasury - omniexplorer.info/tx/14eea2b988181c6b881edbef229a801169b27da03f0cfd4a97ab88170719a474
Latest news about the aformentioned transaction - investing.com/news/cryptocurrency-news/tether-usdt-gets-closer-to-emptying-treasury-with-100m-token-intervention-1582708

Use google translate if you don't (fully) understand foreign languages

ノート

One thing i forgot to mention about Market Capitalization. A wise trader here on TradingView always says "Follow the Money". And he's right. So please vote for the feature request which enables us to (hopefully) have market cap as a data source which can be thrown into our charts.

Thank you very much!

ノート

I've spotted a small mistake in the the description of Indicator "1. Volume Moving Average"

"One is by mid of September 2017, the other one is the current week."

must read

"One is by mid of September 2017, the other one is the PREVIOUS week."

ノート

My bottom line and message to you for today:

The current price and it's latest development is NOT the result of 100% "organic growth". It's been contaminated with an unknown percentage of "synthetic growth".

ノート

Here is the update near end of week.

PoC sits around 6450 since start of week and will probably remain there until end of week. The corresponding volume bar to the right is too long to catch. VAL and VAH remain at previous week's level. VO has stalled too but is still negative. That means that volume is declining FURTHER at a stable rate. VMA is unimpressed and still declines. Because PoC dropped, compared to last week, the lower channel composed of VAL and PoC has narrowed down and becomes REALLY tight. Current price action is above PoC but will fall back into the lower channel if current developments remain unchanged.

Rome might fall.

Feel free to stay at the side-lines and become an eyewitness. Check volume and money flow (market cap) to reveal the developments of the near-term future.

ノート

Here is a small update showing the 1D chart, which made me really laugh. Check VO, Volume is declining since 08/18/2018 but for one exception on 08/22/2018 while the price overall ROSE since then. Did you get the embedded joke in the chart?

ノート

A look at 1W chart shows that the situation hasn't changed in the previous week. Volume and VMA are still declining. The arrow labeled "Fuel is running out" shows lower highs for every bull run compared to the previous one. Current one might not be over yet, we have to wait how the current week will develop. A chance for breaking 58xx is still on the table if it's not prevented by synthetic price maintenance.

ノート

Here are the volumes and market cap from CMC of the previous week.

Date Volume Market Cap
02.09.18 4'329'540'000 123'981'305'470
01.09.18 4'116'050'000 121'471'295'533
31.08.18 4'495'650'000 120'236'411'575
30.08.18 4'463'250'000 121'426'092'460
29.08.18 4'145'880'000 122'240'446'825
28.08.18 4'659'940'000 118'768'797'345
27.08.18 4'019'000'000 115'646'248'487

ノート

New indicators coming soon: CoinMarketCap. Finally!
---
Hi all, great news! We have added Crypto market capitalization data to our platform, so now you can track it on a chart. We have added the total market cap for all cryptos, the total market cap for all altcoins and dominance (% market cap) of the top 10 /markets/cryptocurrencies/global-charts/#

We will soon add this data to the indicators, which will allow you to add it to your chart.
---
Source: getsatisfaction.com/tradingview/topics/adding-coinmarketcap-data

Please visit tradingview.com/markets/cryptocurrencies/global-charts/ for a preview.

ノート

Here are the volumes and market cap from CMC of the week before the previous week.

Date Volume Market Cap
03.09.18 4'087'760'000 125'536'575'445
04.09.18 4'273'640'000 125'273'528'713
05.09.18 5'800'460'000 126'983'440'721
06.09.18 5'523'470'000 116'535'447'253
07.09.18 4'264'680'000 112'645'200'318
08.09.18 3'835'060'000 111'471'362'532
09.09.18 3'671'890'000 107'397'286'192

ノート

Here's an updated Chart, enriched with some drawings. It should be self-explaining. If not -> Questions welcome.

ノート

Volumes and market cap from CMC of the last week.

Date Volume Market Cap
10.09.18 3'714'100'000 108'759'350'260
11.09.18 3'849'910'000 109'293'238'395
12.09.18 4'064'230'000 109'047'547'377
13.09.18 4'210'910'000 109'703'600'477
14.09.18 4'076'220'000 112'498'115'992
15.09.18 3'216'300'000 112'405'369'809
16.09.18 3'273'730'000 112'887'643'665

ノート

I've spotted something unusual. If you sum up the volumes of week 36 (09/03 - 09/09) and week 37 (09/10 - 09/16) you'll end up with:

Week 36: 31'456'960'000
Week 37: 26'405'400'000

Change% is calculated by (Week 37 - Week 36) / Week 36 * 100 = -16.06%
If you look at the last volume bar (the one the red arrow is pointing at) and compare it to the previous one it doesn't look like -16% but more like -50%, doesn't it?

If you have an explanation please add a comment. Assuming that my math is correct, either the historic data of CMC or the data-source which feeds the volume bars on TV is wrong or wrongly processed.

CMC historic data: coinmarketcap.com/currencies/bitcoin/historical-data/