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1. Analysis of bitcoin futures volume on Chicago Mercantile Exchange (CME).
2. Analysis of the long-term trend.
3. Analysis of the medium-term trend.
4. Analysis of the short-term trend.
5. Japanese candlestick analysis.
6. Conclusions.
7. Statistics.
1. Analysis of bitcoin futures volume on Chicago Mercantile Exchange (CME).
Since bitcoin is the flagship of the cryptocurrency market, we will first analyze its trajectory. For this, we will use the data on daily futures volume on the Chicago Mercantile Exchange. The analysis is based on the footprint-profile theory. According to it, the direction of the level with the highest traded volume during the day can indicate the possible direction of the trend. The level with the highest traded volume is the level where the maximum number of transactions was made. This is the level of major market players. Accordingly, if the maximum volume level moves higher, this indicates an uptrend. A downward movement of this level indicates a downtrend. Chaotic movement signals that the market is trading flat.
02.02.21 - The level of the maximum traded volume (POC - Point Of Control) - 34580
03.02.21 – The level of the maximum traded volume (POC - Point Of Control) - 36990
POC moved up, and the price reacted with a rise after the volume injection. The upward movement is likely to continue.
2. Analysis of the long-term trend.
A trend is your friend. Many traders know this saying but do not know how to use it. The answer is simple: trade only in the direction of the trend. This way, your trades will have more profit potential with less risk. The classic Dow Theory states that there are three main trends:
long-term;
medium-term;
short-term.
You need to analyze these trends before opening any trade. This is what we are going to do in the analysis below.
The long-term trend is the daily trend. Trades will be opened on the daily time frame and held for several days. The analysis of the daily trend is carried with the help of the EMA (48), an exponential moving average with a period of 48. If the daily candlestick closes above the EMA (48), then we have an uptrend and we should open buy positions. If the daily candlestick closes below the EMA (48), then there is a downtrend and we should go short.
On the chart, we can see the beginning of an uptrend as the price is holding above the EMA (48). Therefore, we should only consider buy positions.
3. Analysis of the medium-term trend.
In our analysis, the medium-term trend will be the trend on the 4-hour chart (H4). EMA (48), an exponential moving average with a period of 48, will also be used for analysis. If the H4 candlestick closes above the EMA (48), then we have an uptrend and we should open buy positions. If the H4 candlestick closes below the EMA (48), then there is a downtrend and we should go short.
On the chart, the price is above the EMA (48), but is located very close to it. The medium-term trend is moving up and coincides with the long-term trend. This means that you should open long positions. However, the trend is about to reverse.
4. Analysis of the short-term trend.
A short-term trend that can also show an entry point into the market is considered a trend on the H1 time frame. Here, we will again use the EMA (48), an exponential moving average with a period of 48. If the H1 candlestick closes above the EMA (48), then there is an uptrend and you should open buy positions. If the H1 candlestick closes below the EMA (48), then there is a downtrend and you should go short.
Several H1 candlesticks closed below the EMA (48). The short-term trend is already moving down. Since the long-term and the medium-term trends are pointing upwards, and the short-term trend is mowing down, a channel is being formed in the market. This means that you can both buy and sell.
5. Japanese candlestick analysis.
Classic Japanese candlestick analysis is applied to the daily time frame. In this analysis, we will also analyze the daily candlestick.
Yesterday, the candlestick marked with white closed higher. The current high is above the high of the previous candlestick which indicates an upward movement. A daily candlestick is in the form of a hammer, but the body is almost equal to the candlestick's shadow. The current candlestick is weak, with its body located within the range of the previous candlestick. This is a sign that a channel is being formed. In this case, you can both buy and sell.
6. Conclusion
1. Volume analysis: POC has moved up, the price reaction is up - BUY.
2. Long-term trend: up - BUY.
3. Medium-term trend: up - BUY.
4. Short-term trend: up - SELL.
5. Japanese candlestick analysis - BUY SELL.
General conclusion: On February 4, there is a channel being formed in the market, so you can buy and sell.
7. Statistics.
To analyze the effectiveness of this approach, we will keep the data on completed transactions. We advise you not to open a trade today, as there is no clear direction of the trend.
As we analyze the daily charts, this recommendation is relevant throughout the day.
Trade with the trend and you will gain profit!
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