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Pseudonymous crypto trader Altcoin Sherpa took to his social media account to share valuable insights on how to interpret weakening support levels in the Bitcoin (CRYPTO: BTC) market.
What Happened: Sherpa uses an analogy of a dropped ball to explain how the first bounce off a support level is typically the strongest, with subsequent bounces becoming progressively weaker.
He states that the first drop has the best bounce and then there are weaker bounces. He goes on to add that a classic example is Bitcoin at the “unbreakable” $6,000 level in 2018.
He also credits fellow trader CryptoCred for the concept of "first test, best test," which highlights the importance of the initial reaction to a support level. The trader suggests that the strongest bounce is often due to a combination of resting orders and late shorters getting caught off guard.
However, as the price revisits the same support level multiple times, the reactions tend to weaken. But zooming out reveals that the market is still very bullish. Even a 50% retracement to $40,000 would not necessarily invalidate the overall bullish sentiment, according to Altcoin Sherpa.
He writes, "Those previous buyers are getting their orders filled, and there is less and less support the more times it’s tapped." This phenomenon can lead to consolidation at the support level before a potential breakdown.
Also Read: Raoul Pal Predicts Crypto To Enter ‘Banana Zone’ Soon And $100 Trillion Market Cap Within 10 Years
Why It Matters: While this pattern is most observed during liquidation events characterized by long wicks and high volatility, Altcoin Sherpa emphasizes that context matters.
The bouncing ball analogy is more applicable to ranging markets and bearish market structures. In bullish market structures, prices may revisit lows before strongly taking off again, as seen in Bitcoin’s 2021 rally to $60,000.
The Bitcoin market is currently in a ranging structure with no clear trend on lower time frames. Looking ahead, Altcoin Sherpa believes that bullish catalysts, such as the upcoming election and improving macroeconomic conditions, support remaining long on Bitcoin.
While traders are advised to be prepared for short-term volatility and potentially lower prices, Sherpa suggests avoiding panic selling and maintaining a long-term perspective.
What’s Next: The influence of Bitcoin as an institutional asset class is expected to be thoroughly explored at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.
Read Next: Ethereum’s Bottom Against Bitcoin ‘Still Likely A Few Months Away,’ Predicts Crypto Analyst
Posted In: $BTC
