Bitcoin top-down analysis - Why I think it will go higher.

Top-down analysis in crypto trading refers to the approach of examining the market from a macro to micro perspective. It involves analyzing the broader market conditions, such as the overall trend, market sentiment, and key levels of support and resistance, before focusing on specific cryptocurrencies or trading opportunities.

The process typically starts with analyzing the higher timeframes, such as the daily or weekly charts, to identify the overall trend, liquidity levels and major support and resistance levels. This provides a broader context for understanding the market dynamics.

After assessing the macro perspective, traders then move to lower timeframes, such as the 4-hour or 1-hour charts, to identify more specific entry and exit points. This involves analyzing price patterns, indicators, and other technical analysis tools to refine their trading strategy.

By using a top-down approach, traders can gain a better understanding of the overall market structure and trends, which helps in making more informed trading decisions. It allows for a comprehensive assessment of the market and increases the likelihood of identifying high-probability trading opportunities.

In this edition of the trade newsletter, I will conduct a top-down analysis for BTC. I find BTC to be very strong, especially on the higher timeframes. We will start with the monthly timeframe and work our way down from there.

BTC-USDT 1-month chart

On the monthly timeframe, we can see that BTC beautifully respects the fvg’s. In late 2022, BTC dipped into the monthly fvg range of $14-17.6k and bounced strongly from it. This bounce resulted in a price movement where the previous high of $21.4k was broken. We will see this more clearly when we zoom in. After this bounce, BTC retested the fvg of $18.4-21.4k, and later we also see a nice test of the fvg of $25.2-27k. Due to all these perfect tests of the fvg's, I can conclude that the order flow on the monthly timeframe is bullish, and therefore, I would anticipate any dips with long positions.

We can identify two resistance levels on the chart, which I expect the price to struggle to break through. The first resistance level is the lower part of the monthly order block, which is around $34.4k. Slightly higher, around $37k, is the end of the monthly fvg, which also acts as a form of resistance. However, if the price is so bullish that it can break through both resistance zones, I expect the price to seek liquidity around $48k.

BTC-USDT 1-week chartWhen we zoom in to the weekly timeframe, we can see that after the bounce from the monthly fvg, BTC made a beautiful retest of the weekly breaker + weekly fvg. This support zone coincided with the monthly fvg, making it particularly strong. The combination of a breaker+fvg is also known as a "unicorn pattern," which is a favorite pattern among many traders. After the bounce from this unicorn pattern, the price came down again to test the support at $25k, where the weekly order block (OB) was located. Once again, we witnessed a fantastic bounce, bringing us to the current level of ~$30,750.

Looking at the resistance zones on the weekly timeframe, it would be logical to continue the uptrend and at least test $35k. Slightly higher, around $37.5k, there is a strong resistance zone formed by the weekly fvg + order block. Additionally, it aligns with the upper part of the monthly fvg, suggesting that BTC may struggle to break through this area. The monthly liquidity is also visible on the weekly timeframe, making it a good target for swing long positions.

BTC-USDT 1-day chart

We are witnessing a Power of 3 (PO3) scenario playing out, in which the price goes through the following phases: 

1. Accumulation → The price moves sideways for an extended period, building up liquidity at the lower end. 

2. Manipulation → The price drops below the accumulation phase, absorbing all the liquidity at the bottom created during the accumulation phase by large players who fill their buy orders. 

3. Expansion → The price moves powerfully away from the manipulation phase once enough long positions have been accumulated by the large players. The expansion phase is always the strongest phase, and I believe there is a chance that the expansion phase will drive the price towards the monthly liquidity level of $48k.Credits to: @ElChapoXBT on Twitter.

BTC-USDT 1-day chart

From a liquidity perspective, BTC is looking good as well. Each time, liquidity is being taken out at the lower end, followed by a strong upward reaction. We can assume that large players are utilizing this liquidity to initiate a strong upward movement, indicating their interest in higher prices. However, we also observe the sweep of liquidity at the upper end, increasing the likelihood of a correction. It would make sense for BTC to test support levels below $30k from here, bounce back, and move towards the liquidity at $32.4k. Considering the overall picture on higher timeframes, I personally believe that dips below $30k provide excellent opportunities to accumulate long positions.

BTC-USDT 1-hour timeframe

Personally, I'm considering the following scenarios for long positions. As a range trader, and since the price appears to be falling back into the range, I expect it to move to the other side of the range. If the price takes out liquidity below the range low and tests levels below $30k, I will start looking for long opportunities from there. In the most ideal scenario, BTC would sweep liquidity below the wick of $29.4k and reclaim the range. This range reclaim would serve as my long trigger, as shown on the chart.

We'll be back on Friday with an altcoin update!

See you then!

Written by: Luuk Koolen