Since building a broader bullish structure, this market is now consolidating. This type of price action is often a welcome sign towards further strength, but there is one factor that makes this situation less attractive and that is: the sentiment of the crowd is too bullish. And the crowd is not who you want to side with in these situations. In other words, this condition can be described as everyone who was going to buy has bought, which means there is “no one left to buy” so to speak.

No One Left?

Before you get confused and think: but there are millions of people around the world who can jump in and buy at any moment, how could “there be no one left to buy”? The phrase refers to the idea that the majority of the active investor population in this market has bought. And if new buyers do not continue to enter the market, there will not be enough order flow to push prices higher.  So what do you think happens next?

The population or “herd” gets uncomfortable and/or impatient and begin to exit. On top of that, do not forget that there are also the bears who are looking for new opportunities to get short, and will add to the selling pressure as they jump in.

There are only so many traders/investors that are active in this market at any particular time and their aggregate order flow will determine where price goes one way or the other.  What makes this concept even more difficult for new investors to understand is how to detect if such a condition exists. It is a function of sentiment, and this type of sentiment can’t be measured in an absolute scientific way.

Look Beyond The Charts.

One of the ways we consider crowd sentiment is by observing the general comments across multiple online communities like Facebook or Tradingview. If the majority of comments are bullish, that is usually a bearish sign, and vice versa. Using this information does not provide precise timing, but it does help to paint a picture in terms of context. There is some information that must be considered which does not comes from a chart, and putting it into perspective comes with experience.

Why are these social forum comments a good representation of how the “herd” feels? Consider who posts on such a forum. Do you think experienced fund managers use these forums to ask questions and share valuable information? The average retail trader with maybe a year or two of experience is still a reactionary trader and lack their own original perspective. That means when they write things like, “I’m short Bitcoin, it’s going to 1500”, they are most likely reacting to information that is obvious.  And if it is that obvious, the majority of these traders are most likely short. These traders are the ones who will take the other side of the professionals who have the ability to better anticipate what is ahead.  Without such a lack of emotional intelligence, there would be very little liquidity in the market to generate a profit from. It would be like trying to play poker at a table full of highly experienced tight players.  The profits come from the players who don’t know how to play the game.

A recent example of this was the 6K support level on Bitcoin. Price gyrated around this level for 2 months, and got everyone nice and long.  We were also long, but we used relatively tight stops and exited the market for a couple of small losses when the support finally broke.  All those longs were forced out of the market eventually as price made its way to 3150 at which point the sentiment went to extreme bearish. We all know where the market went next.

Bitcoin Chart Update.
Lingering means no momentum.

The technical situation at the moment is acting in line with the obvious herd mentality that is shared by “experts” offering free advice on public forums, or by the comments left by participants themselves. Many are still calling for longs but where is the continuous buying? When a momentum signal triggers, and price lingers that is a negative sign because price should break out. It’s a momentum signal remember? A price that lingers increases the possibility there is “no one left to buy”, and once the herd comes to this realization, price will break the bullish trend line and test lower as they all look to get out at the same time.

New member? Read a previous article here.

If price breaks the bullish trend line recently established by the higher low around the 3550 area, a retest of that low or slightly lower into the 3400’s is very possible. And if it can’t develop a reversal in that support area, then 3K comes back into play once again. Timing markets is more about letting the market reveal its hand and then using that information to measure loose probabilities, not making absolute predictions. That is where most go wrong, including all the “experts” who often present nothing more than weather forecasts (along with 20 updates) because it generates viewers.

Bears Still Control?

In summary, although Bitcoin is generally maintaining its recent bullish structure, the longer it lingers in consolidation, the greater the chance it breaks to test lower prices. Why not higher prices? It has not taken out an important structural resistance located in the mid 4Ks. We have been reminding our followers constantly about this situation. As long as price stays below this particular level, it leans more toward the weak side, even though the recovery process may be in play. This is why we still remain defensive by taking smaller positions when signals appear and by maintaining a very tight management. If we do not like the behavior, we would rather exit for a small loss than get caught for a full stop loss. If Bitcoin breaks higher instead, we simply look for the next momentum continuation pattern for another long. The market tells us when to trade, we do not assert our feelings on the market.

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4 Responses
  1. alexander katz

    Hey Marc, thanks for the article! Hope you’re holidays were well,

    While people do seem a bit overly bullish, it feels like one big difference between now and the period when BTC went sideways for 2 months at 6,000 is the state of the ALT market. I’m mostly referring to ETH, which has almost doubled since BTC has been going sideways. Is this pre-fork hype or the results of specifically oversold conditions after a particularly bad year for ETH? My understanding is that in the most recent bull-run, a robust ALT market led it off.

    Anyway, would like to hear your perspective. Personally, I am working on my position sizing with small dollars right now and planning on entering slowly over the next year or two while taking advantage of the higher probability set ups you guys regularly describe.


      1. alexander katz

        That makes sense, thanks for the reply. So I know that their is a hard fork coming up in the next few weeks that isn’t supposed to create a new coin, but what about these other two? I’m trying to figure out if I need to put my ETH into a wallet and get it off coinbase, as they have been medium about getting people forked coins. I’ve been googling around trying to figure out but have not been able too!

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