Cryptocurrencies

BTC Patterns: How to Analyse Properly

We have all seen long-term Bitcoin charts with repetitive cycle overlays on them. I have published a fair share of them myself. Charts such as this:

I like patterns as much as the next guy does, in fact – I base a lot of predictions on repeating patterns. But I have a problem.

Right now BTC is not adhering nicely to any of my patterns. It started climbing hard in April, three months too early by my calculations, and now it just keeps on climbing! Every time I expect a 20-35% retracement, BTC laughs at me and adds another $1000 to its price.

If you follow the scientific method then you will probably know something about theories and proofs. According to the scientific method (which is right), if the predictions of your theory no longer fit the observed phenomena, then you must either modify your theory or discard it altogether. I have no doubt that there is significant value to be derived from the pattern analysis of BTC, it’s just that recent events show the patterns to be less rhythmic and predictable than what I had hoped.  This got me thinking – here is what I thought:

A look into the mind of Bit Brain

I thought: “If BTC isn’t following the pattern of the previous market cycle, then maybe it is following the pattern of the cycle prior to that.”

To show this on a chart:

Instead of thinking that we are currently about here in our market cycle:

Perhaps we are actually more like here:

So instead of trying to get this (the section in the highlighted block) to fit the current market cycle (which it is clearly breaking away from if you look at the overlay below):

Perhaps I should be trying to fit this older section to the current market:

I liked that at first, because it allowed for the rapid climb we are now experiencing and it allowed for a sort of “double bull” market – which makes sense if you look at the rapidly climbing volume of the current market.

But after much stretching and squashing, I couldn’t get the data to fit any better than what you see above. The current market IS something like the bull run of 2012/2013, but it also differs enough from it that I simply can’t use one market as a template for another. Eventually I realised the truth:

The 2019/2018 market is very like the 2012/2013 market AND like the 2014/2015 market – but it differs from both. What this means is simple:

While all market cycles follow the same recipe, no two market cycles turn out the same. 

I’m going to make that Bit Brain’s Seventh law of Crypto. You can find the rest here: https://steemit.com/cryptocurrency/@bitbrain/crypto-laws-of-bit-brain

Once I realised this I found it to be very liberating. I don’t have to expect a 30% price drop. I don’t have to be worried if BTC is rising faster than it did in 2015. I don’t have to expect BTC to follow a curve similar to one that it has followed before.

I still expect BTC to follow some major trendlines, but perhaps not as rigidly as what I once did. I still expect BTC to follow the usual hype cycle shaped curve, but I won’t care if it runs through the cycle at a strange speed, if one cycle starts sooner than another or if one cycle is much larger than another.

It is important to remember that the cryptocurrency asset class is still very volatile and young: so young that I hear many traders still refuse to even accept it as an “asset class”! (Boy are they going to look stupid a few years from now!) BTC can and will do just about anything. Departures from the norm ARE the norm!

Before it became over-regulated, I used to be a great fan of Formula 1 racing. Those who watch F1 may remember the very famous commentator Murray Walker. Murray Walker was famous for saying some of the dumbest things in the history of sports commentating (search the web for “Murray Walker Quotes!), but Murray often said one very true thing: “Anything can happen in Formula 1, and it usually does”. I believe that Murray’s quote can be applied to crypto too: anything can happen in crypto, and it usually does!

What this means is that the job of crypto analysts just became a whole lot harder. “Less predictable” is not the kind of thing that gels well with TA principles! However, I think it’s important that analysts realise this, especially for medium and long-term predictions. It does not bother me that I tried to fit BTC to the patterns of old markets in the past, I was doing the best I could with the data at hand. New data, kindly supplied to us by the current climb in BTC price, shows that my previous approach was wrong. I am adapting my methods to incorporate the new data: beware of those analysts who do not adapt!

It may take a while for it to become apparent to most other analysts (so don’t be too hard on them at first), but be very wary of anything based on the old “repeating market” method – for the reasons I have discussed in this post. As a general rule: be wary of crypto analysts who are too close-minded and set in their ways, that mindset will not make for reliable crypto predictions!

If you doubt what I say today, then take a look at the evidence: look at the predictions of other analysts. Look at things like end-of-year BTC price predictions, the state of the market (some still insist this is a bear market!), when the next retracement will be and how big it must be, where the Fib levels are etc etc. We ALL differ in what we say, which should be an immediate indication to the outsider that crypto TA methods are still under development and that even the best predications should always be taken with a pinch of salt. This is why I always like to say that people must DYOR – Do Your Own Research. It’s not to say that you, the reader, know better than the analysts do, it’s to say that analysts don’t even agree with each other. Ultimately the responsibility for your crypto investments is on your head, so choose wisely when you choose which analysts to follow. I see so much bad crypto analysis every day (normally in the mass media) that it really scares me!

Conclusion

I don’t know what this market is going to do next. Neither does anybody else! Beware of those who think they do.

For now I can tell you that the market is a bull market. It has broken numerous 2018 resistance levels and volume is steadily growing. While I do expect dips along the way (much like we had in June and September 2017), I can’t tell you when they will happen. I do think that this bull market will either be very big, or will be a mini-bull market before a much bigger one. Whatever it is, I am confident that crypto will keep growing rapidly – and that’s all that really matters to investors at the end of the day.

Yours in crypto

Bit Brain

All charts made by Bit Brain with TradingView

“The secret to success: find out where people are going and get there first” 

~ Mark Twain

“Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful” 

~ Bit Brain

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