Expanding on my last idea focusing on the first move in this sequence, here is a bigger picture of this idea and I will explain in detail how I arrive to this.
1. The market is always going to absorb liquidity.
We know this. We also know that since Dec 2022 Bitcoin has been on a steady climb up allowing for lots of long positions to open and stay open. What this creates is a lot of absorbable liquidity in the form of long position stop losses. Further more, the dominance of leverage is very high in crypto, therefor these stop loss orders are “leveraged sell orders”. This is the “fuel” that can be used to explain the possibility of a move of this magnitude.
In other words, the orders are already in place in the chart; the adverse of traders decisions via leveraged position stop losses.
2. We can identify (2) main trendlines that explains why Bitcoin has been struggling so much around these zones. Price tends to break above and below these diagonal trendlines, trading sideways in a diagonal fashion – until there is enough “fear” or justification to allow the trendline to play itself out.
The first trendline I design for you in my previous idea. This takes Bitcoin to a zone with several confluences. (1) A Volume Profile support, (2) The bottom of a bearish trendline, and (3) The absorption of a mass amount of liquidity located from the current price to that zone.
The second trendline, which you can apply the same validation methods I pointed out in my previous idea (duplicating the trendline and placing it infinitely at different areas on the chart and observing price respecting the angle), has a bottom of $7,000.
Now this Uber low may seem extraordinarily unrealistic, but there is again, a mass amount of liquidity located in those low zones that the market wants to absorb.
3. I lay out here a corrective wave sequence that would allow all of this liquidity to be absorbed.
The US Dollar on the higher timeframes shows a bearish retest of a major breakdown. With all of the negative news and geopolitical tension with the US, both technically and fundamentally this points in the direction of a falling US dollar relative to other global currencies.
4. Ultimately this is good for Bitcoin.
I present this idea for several reasons, most importantly, what I can see happening (assuming this does occur) is that many holders and investors will sell at very low prices in extreme fear that Bitcoin will go to zero, when in fact it would just be a liquidity grab prior to a true 3-5 year bull run on Bitcoin as the US Dollar loses strength.
Of course being ill prepared and selling at those extreme lows would be catastrophic for investors and traders.
So if anything, I hope this serves you with the possibility explained in detail, and in the event you see this occur, to not panic and not sell. To do the exact opposite of what the majority would do and BUY into those extreme fear zones.
Happy trading and stay safe.
For anyone wanting to argue that it’s not possible or showing their confidence that it would never happen; please understand there is no harm is looking at potential scenarios and this isn’t an ego contest about who is right or wrong. It’s ideally about looking out for each other and sharing our work, knowledge, and experience to collectively succeed in understanding this challenging market.
People may also like to point out that I’ve been speaking about this occurring for roughly a year, and have been wrong – however the timing of such events doesn’t mean it’s “wrong”. If the chart demonstrates a possibility, it remains.