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The price of Bitcoin does not seem to be going to fall, despite the fact that the fear index and greed indicate an overheated market.
Some analysts and popular publications pay attention to indicators that show an inflated Bitcoin price.
Supporting bearish sentiment, we remind traders to use stops that will save you from unwanted losses.
As for the indicators, we are talking about the Bollinger Band and the fear and greed index. They both often show overbought levels whenever there is a 30% weekly rally, such as the most recent one.
Therefore, it is difficult to say whether we are approaching a potential correction or whether the rapid rally will continue.
For example, popular YouTuber and trader Nebraskangooner pointed out in his Twitter post that the recent $56,000 ATH could be the upper limit of the bullish channel that has guided Bitcoin since the beginning of August.
Bitcoin’s “Greed” can Last for Months
As for the fear and greed index, now we will look at several examples that prove that the overbought level can hold for several weeks in a row.
Note how from January 29 to February 26, the Bitcoin fear and greed indicator remained above 65. This indicates an overconfidence of traders.
This metric uses the trading volume that was opened on futures, social indicators and search data to understand the degree of overheating of the market.
Based on the image, only after 4 weeks of obvious overbought, a correction of the Bitcoin exchange rate followed. The one who sold in the first days after the indicator flashed missed the subsequent rally by 70%.
A similar situation occurred between July 23 and August 25, when the Bitcoin price continued to rise.?Yes, a correction is inevitable, but at what exact moment should it be expected?
Bollinger bands – short-term indicator is normal
John Bollinger is an experienced and respected trader, but his indicator is a moving average plus some deviation based on the current volatility.?To put it simply, the weekly movement of 30% will be out of this range most of the time, given Bitcoin’s usual daily volatility of 4.5%.
A minuscule correction usually occurs when Bitcoin breaks through the upper Bollinger band. Nevertheless, if we take into account the price for two to four weeks ahead, the correction indicator will be zero.
Neutral Bitcoin Financing Rate
In the end, we draw your attention to the financing rate. This is a commission that is charged by derivatives exchanges to balance the risks between short and long positions commission (those who buy and those who sell) when their leverage changes.?Of course, when there is a surge in purchases, the indicator grows.
The current average rate of 0.04% for 8 hours, or 0.8% per week, is not unusual.?Going back to December 2020, it remained above 1.5% per week for the entire month, and then in February 2021.
Like the fear and greed index, this indicator indicates that buyers’ self-confidence is growing, as it exceeds 0.10% in 8 hours, but this is not necessarily an alarming level.
As long as traders believe that the rally continues, paying a weekly commission of 1.5% or even 3% will not force them to close long positions with leverage.?For example, if the shortage of Bitcoin on exchanges has led to a recent increase to $ 56,000, then as the holders increase, the price of the coin may jump to 100,000, and maybe higher.
But he will not forget about the volatility of the market, which can collapse at any moment if the news fund is rich in bearish events. For example, some draconian US ban on the cryptocurrency industry, in which case Bitcoin will not be able to overcome its April maximum and will be forced to gain strength again at lower support levels.
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