Fractals are repeating geometric patterns, present all around us in the form of repeating geometry. Bitcoin markets are of no exception. In markets, a repeating geometry can be observed on charts in various magnitudes. While most view charts as the price of a commodity or security being affected by buying and selling. It is important to acknowledge that the buying and selling is the result of market participants.
Market participants are a combination of human and quantitative efforts- “algorithms”. Humans are creatures of habit, and one can make the argument that quants are less predictable. But it is no doubt that the cumulative combination of efforts result in quantifiable repeating outcomes. In a sense all chart formations and technical tools are based off the probability of repeating outcomes due to the involvement of habitual participants.
To summarize fractals and put matters into perspective, a fractal is a pattern previously observed on a chart that can be characterized by shape, dimension, phases, and is quantifiable. Once that pattern starts repeating itself in similar market conditions, with the similar quantifiable data sets and parameters, it is safe to assume that market participants are experiencing a similar type of habitual market engagement.
State of Affairs
On 8/14 our team called for a short squeeze on Bitcoin, and since then we observed the chart rally +24%, only to pullback some -15% for good reason.
Technically speaking our team observed a Rising Wedge formation combined with both RSI and MFI divergences. Hence a pullback was expected and short positions where hedged at the top of the run for a staggering 800% return on equity.
The short squeeze that was called for occurred, but not at the magnitude we anticipated. Still, our long position from $6,040 to $7,000 was extremely profitable and so was the short play from $7,350 to $6,300. But it is not over yet.
We have reason to believe the real short squeeze is still brewing, based on a key fractal from the previous squeeze earlier year occurring in April.
Repeating geometry we say? Absolutely,
Quantifiable, with 6 phases, similar market conditions, and Fibonacci correlation.
The above chart demonstrates our fractal, the nature of it was labeled as a “fulcrum bottom” by infamous classical trader Peter Brandt. Let’s study the Fulcrum, it’s phases and then proceed to the current construct.
Swing low, followed by an initial peak.
(swing low) (initial Peak),
Initial peak to Higher Low, (HL)
Once again labeled on the chart.
C for channel, 1 for being the first channel in this fractal, (C1)
in this case C1 formed a rising wedge, that peaked at 61.8% fib labeled (LH), Hence, LH,C1
A pullback from LH, C1, to form Higher Low 2, (HL2) at 23.6% fib level.
Channel 2, the rise from HL2
In the form of a secondary Channel, forming a new lower high to the 50% fib level. (LH,C2)
Final Shakeout, another sudden drop in the form of a smaller knife.
From LH,C2, down to fibo 38.2%
And then finally the squeeze. A big move that took Bitcoin price up to 1.618% Fibo, which also resulted in the entire market cap rallying for 30+ days.
The current state of Bitcoin and market conditions resembled April.
BTCUSDSHORTS, aka short selling, is once again climbing back to all time highs. If that was the only resemblance, we wouldn’t be writing this publication.
We observed and quantified our previous fractal, in the form of a “fulcrum bottom” developing.
Having identified our phases in the previous section, let’s fast forward and stick to the relevancy. Phases 1, 2, 3, and 4 have been completed. Fibonacci levels match, and the nature of the geometry is quantitatively identical.
What’s the difference? Magnitude.
Everything else being relatively the same, this current geometry is taking much longer to develop, but on a grander scale. Bigger swings, more volatility, and longer time frame.
April’s fractal in terms of duration and phases, it took BTC 7 days from the beginning of Phase 1 to the end of Phase 4. Current fractal has taken 73 days.
And in terms of volatility, by just studying Phase 1, from Swing Low to Initial Peak, BTC rallied %17 back in April. Current fractal formation, during that same Phase, BTC has rallied %45.
Currently Bitcoin is forming HL2, the beginning of Phase 5.
So long as HL2 holds as a higher low, and BTC doesn’t experience a lower low than previous HL, our team is confident that this fractal play is on track.
Next we’d like to observe price move into a form of a channel, to from LH,C2. at Fibo 50%, to complete phase 5.
1.618 fib level coincides with $10,000.
“Why is the market doing this?” is a valid question. “Efficiency” is the most reasonable explanation we can come up with.
The previous minor squeeze that we traded on 8/14 proved profitable, as we traded it both ways and we were able to make great profits, and so was our trading community. But was this minor squeeze sufficient for a head turn on Bitcoin?
Absolutely not, as Bitcoin’s previous highs couldn’t be breached, so the market resorted to a previously identifiable pattern, that has proven to be efficient.
We expect this developing Phase 5, to increase the amount of BTCUSDSHORTS, and other short sellers to a new all time high, for a more efficient and violent squeeze.
If this read helped you gain perspective and better understand markets, please share our writing. To connect with our team, and learn how we are preparing ourselves to profit from this move, visit us at https://coinobservatory.com
Author: George Saber (George’s BlockDelta Profile)
Editor: Matthew Pink