Grayscale Bitcoin Trust: Extreme Level Below Mean Activates Buy Signal

As we look at the weekly data points for the Variable Changing Price Momentum Indicator (VC PMI) automated algorithm in relation to the Grayscale Bitcoin Trust (GBTC), it appears that the average price as we come into this week is at $10.90. The VC PMI then calculates the extreme above and below that mean using a Fibonacci structure. It identifies two levels above and two levels below the mean.

Looking Back

(Click on image to enlarge)

The chart shows that a high of $12.83 was made on September 23. It corresponds to a sell 1 (S1) level of $12.55 and a sell 2 (S2) level of $14.20. When the VC PMI identifies the S1 and S2 levels, it identifies the area where self-directed traders can find distribution of supply or potential sellers entering the market. The artificial intelligence tells you that there is a 90% probability at the S1 level of the market reverting back to the mean. There is a 95% probability of a reversion back to the mean if the market reaches the S2 level.

In my book, Mean Reversion Trading, I describe S1 and S2 as very high probability areas for trades. If you are long, these levels are excellent areas to sell or take profits in managing inventory. If you go short from these levels, they represent high probability trades. The algorithm uses the 15-minute bar and the artificial intelligence directs you to a methodology. If the price touches the S1 level the first time, it tells you to prepare. We have reached a pivot point. If you are long, go neutral. If you are neutral and looking to go short, get ready for a confirmation. Then if the price closes below the S1 level, enter the market. In this case, the market made a high of $12.83 on the 23rd, it closed below the S1 of $12.55 on the same day, closing at $12.30. This activated a short signal and activated a protective level, with a stop at the level above: $12.55 in this case. It also identifies the target as the level below, which in this case was the mean of $10.90. The structure identifies the trigger point, a stop and a target. The target was completed on the 24th by the price coming down to the mean from $10.90.

That was a pretty decent profit on a swing trading position overnight.

Once the target is completed, the VC PMI advises you to go neutral. It does not recommend to trade when the price trades around the mean.

It suggests that you execute only the highest probability trades, as identified by the VC PMI at the S1 or S2, B1 or B2 levels.

In this case, the market did not reach the S2 level of $14.20 because there was not enough demand to penetrate any further to the upside. The market came down to close below $12.55, activating a short trigger.

As the market continues to come down on the futures contract, we do not suggest trading the mean. It is a 50/50 standard deviation on whether it will go up or down.

On the 26th, the market did come down to a buy level, which is a time to enter the market and go long.

The low was $9.25 on the 26th. The Buy 1 (B1) level is $9.25. As you can see, the price activated a buy signal: a long trigger.

The VC PMI identifies levels of supply and demand. As the market comes down, the VC PMI identifies the trigger points. When a buy signal is activated, in this case at $9.26, it identifies your stop at $9.25. It also automatically identifies your target as the mean at $10.90.

The market has gone from the extreme above the mean to the extreme below the mean.

There is now a 90% probability of the price reverting back up to the mean of $10.90.

Next Week

As we come into next week, we are coming in with a bullish signal activated at $9.25. Your stop is $9.25. Your initial target is $10.90. The market has also activated a B2 level of $7.60 with a 95% probability that if the price is activated down here, the price will revert back to the mean of $10.90.

It appears that $9.25 is offering a very strong level of support and we suggest that you maintain all long positions activated at $9.25, using $9.25 as your protective level on a close below using the 15-minute bar.

Disclosure: I am/we are long GBTC.

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