Many traders and investors are wondering what has happened to crypto and why it is apparently still in a long-term congestion phase To answer this question we need to consider the daily chart as the cryptocurrency is at a fascinating point in its evolution.
The key candle which triggered the current phase is the price action of the 19th of May. This was a day of extreme price action and one which triggered the volatility indicator denoted by the purple triangles top and bottom.
What this confirms is the price action for Bitcoin moved outside the average true range (ATR) for this time frame and as such we can expect one of two events to follow. Either congestion within the spread of the candle or a reversal in trend, in this case, higher. As can be seen, we have the former and what this candle also then defines for us are the levels which then confirm the extremes for the floor and ceiling of the associated congestion phase.
The extreme volume also confirms this was a genuine move, one which was accompanied during the session with some serious buying as denoted with the depth of the wick to the lower body. It often comes as a surprise to cryptocurrency traders and investors that volume price analysis can be applied in exactly the same way as for any other market!
So to consider the daily chart in detail we now have a ceiling in place at $43,500 and a floor at $30,000, yes a big range but for Bitcoin one which can be cleared in a matter of days. However, the key point is this—until one of these levels is taken out, the cryptocurrency will remain rangebound between these two levels at which point, the volume will take center stage to confirm if the breakout is genuine and has some momentum or is a fake.
As an example of how volume price analysis can be applied, consider the last 6 days of price action. First, we have a hammer candle in green and notice the volume which is excellent and well above the average, so this must be serious buying, otherwise, the candle would not have closed with the deep lower wick. What then follows is two days of up candles, but notice the volume—it is falling.
This is a sign of weakness. For a rising market we should see rising volume confirming the buying interest, and the reverse is true with volume declining, so the wide spread down candle in red comes as no surprise and this is followed by two up candles in green, but again with volume which is falling. This signals a weak response and as we can expect further congestion.
In summary, it is the two key levels of the volatility candle which now dictate the range. Until one of these is breached, Bitcoin will continue to trade in this range. Watch out for the breakaway and when it comes check the associated volume to confirm that it is a genuine move.