High Time Frame Price Action
Chapter 2
What this series is: A guide to navigating PA (Price Action) and HTF (High Time Frame) Structure.
What this series is not: A guide to trading
Recap of Chapter 1:
Last month I discussed a broad overview of Bitcoin; from its full 11 year history, down to its current 17 month range. I highlighted key S/R (support/resistance) levels and how price reacts to them.
I left off with BTC putting in a key ‘drop-hook-drop’ formation at 43k (which I’m renaming to the “Bull Hook” for obvious reasons) and low and behold we were at 39k the very next day.
Chapter 2 Outline
- BTC Follow Up
- ETH
- SPX
- DXY
BTC Follow Up
I’m going to go quick because I covered BTC extensively last month
Where we were:
Where we are today:
So what happened?
I talked about the importance of the 34k — 45.5k range and just how significant a range breakout and re-entry could be. Traders refer to this as a Deviation or Swing Failure Pattern (SFP) which indicates reversal towards opposite end of range (34k). We’re currently watching this play out.
Let’s zoom in and see how this is unfolding locally:
It’s been nothing but a steady decline towards range low. Shocker.
Note: It’s been my experience as a trader that SFPs often lead to Range breaks in the opposite direction. I like explaining this phenomenon with a metaphor —
Think of ranges as battles where one army is pushing the other one back. Checkpoints (levels) are taken or rejected. If an army of Bulls storm the defenses (resistance) of their enemies (Bears) and lose- they will naturally retreat to their own bases (Support). If they lose too many warriors in the prior attack, they may not have the numbers necessary to defend their base and may need to retreat further to gather new recruits.
i.e SFP → SFP
Quick significance of 34.7k:
34.7k was the top of the Jan 1, 2021 Weekly wick that brought us into this 17 month range.
2021 — Weekly timeframe shows how we continued to close above this level for 8 straight weeks despite extreme bearishness.
3 Day candles show how you could easily subdivide the Jan selloff and Summer Bear into two clear trading sections above and below the level.
2022 — 3 weekly taps of that area in Q1.
Do we put in another wick and close above?
If the broad markets (*cough*SPX*) hold on, we could see 34.7k once again hold support. This is my most bullish take on where we’re currently at.
Ethereum
Ethereum, as many of you know, has been the risk asset indicator of the crypto markets over the last two years. It may also be the leader of the crypto market, despite the lower market cap vs. BTC. I have successfully followed BTC’s price action to enter and exit alts for the last 2 years — but this may be changing.
ETH has arguably been an even cleaner chart than BTC when viewed in a slightly different manner. Diagonally or in other words, Trending.
If this looks confusing. Take it step by step. Follow the chart left to right. Take your time. (If it’s still confusing there’s a simpler chart below)
Start with the blue channels.
Support. Resistance. Support. Resistance and so on…
Next the Green dissecting channel. Support. Resistance etc…
(If this is your first time looking at a chart and need more help, please refer to Chapter 1 on BTC where I go into much more detail. This will give you the skills to navigate ETH and any chart thereafter)
Difference from BTC? While BTC is range bound in a horizontal plane- ETH has been range bound in a diagonal plane. Why? ETH has been stronger. Whether it be ETH 2.0 narratives, NFTs or simply a higher beta play on BTC- we can’t deny the growth.
Impeccably clean.
Are you with me? Good.
Taking the lessons we’ve learned from BTC’s 45.5k — 34k range, what would you assume happens when you break out over a Resistance** level and fail to hold it? Did you say “a sell off to the next solidified support”? Correct.
Backtest rejections brewing on low time frames?
**(The resistance level being the Green Trend that dissected the entire range for the past 1 year. We broke out above (again) and we are failing to hold (again). Zoom in and you’ll see numerous backtest rejections.)
ETH in a Horizontal Plane
While I may admire a trending ETH, you may not. I’ve shown the above charts many times to my friends in the PDE Discord and received a lukewarm response at best. I get it, it looks messier. Let’s go back to basics.
Where are we? Support. Why is it support? It was the S/R flip launchpad that took us to All Time Highs. This ~$2700 level is synonymous with BTC’s 40k level I talked extensively about last month.
Now while BTC is currently trading 8–10% below this ATH launchpad, ETH is still trading above. But will it hold — and where’s the next level if it doesn’t? You tell me. Look at the chart. Analyze support and resistance. (hint: it’s already drawn on there).
This divergence in BTC and ETH strength is even more evident on the ETH/BTC chart which analyzes the price of Ethereum denominated in BTC instead of USD. While ETHUSD is fading — ETHBTC is rising — evidenced by the S/R flip its currently attempting over the red trend.
Equities
I tweet about equity indexes a lot and they’re generally a lot easier to break down vs. crypto. Less volatility. More long term trends.
Even if you only care about your alts, you gotta watch BTC and ETH — and even if you only care about BTC and ETH, you gotta watch SPX and NDX.
SPX
Yikes, huh? Yeah, feeling is mutual.
By now, you should understand how I find my s/r levels. If not, that’s ok. Levels are less clear in a trending market than a range bound one. Here, I just use the most obvious ones.
Since we basically went up-only mode from 2020 Election to the 2022 top, there’s not a lot of support built up on the way down. This chop at the top reminds me a lot of the 50–60k distribution range we put in Feb — May 2021 on BTC. We all know how that ended.
Will SPX crash like May ’21 BTC? Not as brutally, but it is certainly a possibility.
4100, 3800 and 3500. These are the main levels to concern yourself with. Don’t get baited by volatility between them.
3,200–3,500 is our worst dooms day scenario as far as I’m concerned.
> But Doc, why aren’t you treating 4100 as a potential bottom location? It seems to be a significant level on its own.
Could be, but global macro factors, rising inflation, high asset valuations, Fed Quantitative Tightening scheduled June 1st and a DXY that looks like it’s breaking out? I just don’t see it.
Plus, click here to take a look at how similarly SPX is breaking down when compared to the 2008 GFC.
DXY
U.S. Dollar Currency Index
It measures the value of the dollar against a basket of foreign currencies. There’s a lot of nuance that goes into understanding why DXY moves but let’s keep it simple, shall we?
DXY is inversely correlated to risk assets i.e. when DXY is heading up, most risk assets are heading down.
The chart above goes back 50 years.
The major bubble you see on the left is America’s last major inflationary crisis. The middle bubble is the Dotcom Bubble and the flag you see on the right spans the last 7 years.
I’ve been caught fading DXY for a few months now. Thinking TA alone will stop this rocket ship, but in reality there is too much macro noise for a candlestick chart alone to handle.
So why even bother?
Confluence.
When approaching my own trades, I try to draw as much confluence as possible. In our current environment if DXY is breaking out, I may ignore the shaky support that my ticker is resting on and opt to wait for a lower level for a long.
I’m sorry to say this, but something that has been ranging this hard for 7 years is likely to break out with some emphasis. I wouldn’t fade DXY just yet. I mean does that look like a top candle to you?
If DXY breaks out- SPX, BTC and ETH are likely to break down.
Watch the levels that I pointed out on the chart to add confluence and confidence to your own charts.
If DXY is stuck at resistance/rolling over and your ticker is at support — you’re onto something.
That was a lot of info: TL;DR?
BTC: Support 34.7k and 28k
ETH: Looking stronger than BTC on the way down. USD pair at support. BTC pair attempting break out.
SPX: Not comfy at 4,100. Levels to watch 3,800 and 3,500.
DXY: Adding confluence to the entire pie, if its leading higher- expect risk to go lower.
Thanks for reading!
Check back next month ❤
