Level up your understanding

29 thg 7, 2023

The Liquidity game is much, much easier than you think.

Most people only want posts that align with their own beliefs, the reality is Bitcoin is becoming institutional and the more players coming does not simply equate to prices rising.

Logic will tell you, these "professional money makers" will want better prices, the accumulation phase on this scale will have retail torn apart. Every $100 rally will feel like the time is now and every $50 drop will feel like the end is near.

I've shared countless posts and live streams here, talking about the transition.

Here's a whole new set of things to think about to educate yourself on the current situation.

First of all here's one of the latest streams going into detail of some of the logic.
tradingview.com/streams/1egDUAcomv/

In educational terms here we go.

When price moves up and volume goes down, this is called divergence.

Imagine you're at a party with your friends, and you see two people dancing together. One person is dancing really fast, moving a lot, and having a great time. The other person is dancing slowly and not moving much. This difference in their dance styles is like volume divergence in trading.

In trading, volume refers to the number of shares or contracts that are traded in a specific time period. It's like how many people are buying and selling stocks or other financial assets.

Volume divergence happens when the price of a stock or asset is going in one direction, like going up, but the volume is not matching it. For example, the price might be rising, but not many people are buying or selling it. It's like the dancing person who is moving fast (price going up) but not many people are joining the dance (low volume).



Ok so step one, there is a clear divergence of volume...

Next

I can guarantee some people will question the relationship to the price.


Well. I used a box to measure 50% of the move here, just to highlight the obvious. Look left and see the level to volume actually peaked higher on the right and then dropped off, so argument no longer valid. Secondly, the orange line represents the green spike in volume that we lack in the current move.

Third point;
Look at the Weiss wave moves, again I have covered this in several educational posts here as well as many of my streams, if you don't know what this is. Go back and look through the posts. I often use Weiss to justify a 3 wave in an Elliott wave move. It can quickly highlight the obvious level of impulsive nature. Or in this instance, the lack of.


Zoomed in and then over to the monthly timeframe.


So what you need to understand is that with lack of impulsiveness and clear divergence, what else can you see that backs up the logic?

How about using Oscillators?


The monthly stochastic clearly showing overbought.

And an off the shelf OBV showing sideways balance


If you can learn to read these simple points, your already onto a winner. Many newer traders have strategies that often include RSI, MACD or Moving Averages and 9 times out of 10 it's on too small a timeframe. "If in doubt, zoom out"

Combining logical arguments to figure out where you are on the chart can help you develop a much better picture, if you still want to trade smaller times, then you have a bias based on the bigger picture.

OK - so next, let's take a look at a slightly more advanced view.

This is CVD (cumulative delta);


What does the numbers mean?

Imagine you have a piggy bank, and every day, you either put money into it or take some money out. The total amount of money you've put in or taken out is like the cumulative delta.

In trading, cumulative delta is a way to keep track of the buying and selling activities in the market for a particular financial asset, like a stock. Instead of money, we use something called "contracts" or "shares" to represent the buying and selling.

When traders buy a stock, it's like they are putting money into the piggy bank. And when they sell the stock, it's like taking money out of the piggy bank. The cumulative delta keeps track of the difference between the number of shares bought and the number of shares sold throughout the day or a specific period.

This image above tracks the numbers for each swing.

When coupled with other tools such as Footprint levels, you can see where the higher levels of liquidity is sitting.


Now combine the stages above. Let's recap.

1. Bigger players coming in will want better prices.
   
2. We have divergence on volume.
   
3. Weiss waves lack impulsiveness.
   
4. Oscillators oversold or show sideways balance.
   
5. CVD levels still mostly negative.
   
6. Footprint key levels have wider gaps to the next layers of liquidity.
   

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Now, what else would be worth looking at? Well. one tool I have shared many times in the posts and streams is called COT.

COT stands for "Commitment of Traders." It's like keeping track of who is doing what in a big game, but instead of players, we are talking about traders in the financial markets.

Imagine you are playing a game with your friends, and you want to know who is on which team. You might have a list that shows how many players are on each team and what roles they play, like who's a striker, who's a defender, and so on.

In trading, COT is a report that shows us how many traders are on each team, so to speak. It tells us how many traders are buying and how many are selling certain financial assets, like commodities (like gold, oil) or futures contracts (which are like agreements to buy or sell something at a specific price in the future) AND of COURSE BITCOIN.

The COT report is released by official organizations, and it's based on data collected from traders who are required to report their positions in these markets.

Why does this matter? revert back to bigger players in the market coming for Bitcoin...

just like in a game, knowing which team has more players or which roles are in demand can give you a clue about the game's overall strategy.

When we look at the COT report, we can see if there are more traders buying or if more are selling it. This information helps understand the market sentiment.

If a lot of traders are buying, it might mean they have a positive outlook, and the price of the asset could go up. On the other hand, if many traders are selling, it might mean they are not so optimistic, and the price could go down.

In COT terms, there are two major players I look for in the reports.

Asset Managers
COT Asset Managers are like assistants for the big investors, like hedge funds or investment firms. These big investors have a lot of money to invest in different things, like stocks, commodities, or other financial assets including Bitcoin.

It is the Asset Managers' job to take care of these investments and make sure they are managed well. It's like they are the guardians of the funds.

So Asset Managers view of Bitcoin currently seems to be positive.


Now for the second player I look at in the COT report.

Leveraged Funds
Imagine you a bank that allows you to borrow money. You then use that money to invest...

Leveraged Funds are a bit like that. They are investment funds that use borrowed money, or leverage, to try to make bigger profits. These funds can invest in different things but in this case their investing in Bitcoin.

Here's how it works:

Regular Investment: Let's say you have $10, and you decide to put it in a normal bank. Over time, your money might grow a little with interest, and you'll have more than $10.

Leveraged Investment: Now, let's imagine you have another bank called a leveraged fund. Your bank give you an extra $10 as a loan, so you have a total of $20 to put into this leveraged bank account. This means you can invest twice as much as you originally had!

However, there's also a risk with leveraged funds. If the investments don't do well, you might lose more money than you initially had. For example, if your $20 goes down to $15, you still need to repay the $10 you borrowed, so you'll end up with only $5 of your own money left.

The summary here is that larger investors use leveraged funds, so unlike Asset Managers who have a very long outlook. The Leveraged Funds element of the COT report is smaller timeframes but still a lot of volume.

So, what is their current view?


Whilst we have a positive long term outlook. COT would suggest we are not completely ready to shoot off to the moon just yet.

I have really tried to over simplify the post here for the sake of education. There's a lot more to each individual section, but knowing these basics will set you off on the right path.

Bitcoin becoming institutional is a great opportunity if you know where to look. These moves are far from random as you can see in this post below.

Anyways! take it easy and good luck out there!

Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.