1/20 Bitcoin is tanking. Why was this expected and what it could mean? High-level crash course in technical analysis.

(Video version @ )

A thread.

2/20 I've been saying for some time now that Bitcoin was due for a correction. No asset goes up in a straight line. There will always be a point at which people who hold an asset decide it's time to cash in and take some profit. No point in holding an asset w/o ever profiting.

3/20 Once people start selling into an asset, the price starts going down. Why? Imagine there was only one car dealership that had the car you wanted. You'd have no choice but to buy it there. But if several dealerships had it, you'd go to the one w/the best price, right?

4/20 It's no different in crypto. You don't see it on Coinbase, but if you're on an exchange like Bittrex or GateHub you see the actual order book where people are setting their sell prices (ask) and others offering what they want to pay (bid).

5/20 If there's only one person selling and you want to buy, what they're asking is what you'll have to pay. But if lots of people are wanting to sell, they'll have to compete with each other to get their cypto sold by offering a better price to the buyers.

6/20 This seller competition creates a snowball effect of ever lower prices until all of the sellers have sold or they're unwilling to go any lower. People's reasons for wanting/needing to sell differ, but the competition it creates is the same no matter the reason or market.

7/20 The buying and selling can be visualized on charts. These charts take price movements across fixed time periods and draw them as shapes that become patterns that result in fractals (a fractal is just a larger pattern made up of smaller ones).

8/20 Before I go further: I am not a professional technical analyst, but I understand the theory behind why it works. I follow a lot of TAs on Twitter and YouTube, but I never see them mention WHY these lines and squares and colors on the chart mean something could happen.

9/20 So what is technical analysis? TA is the ability to spot patterns on charts that are known to have certain probabilistic outcomes. A simple example is a triangle. When price starts getting squeezed into the tip of a triangle, it usually breaks out hard in one direction.

10/20 When a triangle forms on a chart, a TA might wait to see which way it breaks out and buy if it breaks up or sell if it breaks down. None of these patterns work 100% of the time, which is why TAs combine patterns with indicators.

11/20 Indicators are just a different way of looking at price movements. A popular one is RSI (relative strength index). If an asset breaks down out of a triangle and the RSI has been declining and is low (below 50), this confirms that the price isn't going to recover.

12/20 TAs all have their favorite indicators and tools. Fibonacci retracement is a popular one used by crypto analysts, as is Eliot Wave Theory. I won't go into the details of those here, but it's worth diving into if you have the interest and the time.

13/20 But how do you know that just because certain outcomes were true for certain patterns in the past they will also be true in the future? Because people don't change. When you're looking at a chart, what you're seeing is human psychology at work. That doesn't change.

14/20 It doesn't matter what asset it is, how many years ago it was, what the news is specifically this time compared to last time, humans are humans are humans. They respond with emotion, fear, greed, hope. Short-term humans are irrational, long-term they do a bit better.

15/20 So when you see a pattern on a chart, you're seeing a snapshot of human psychology. There's no reason to believe humans will respond differently the next time the same pattern emerges, so you can make decisions based on those patterns.

16/20 Right now Bitcoin is looking pretty weak. It still has a ways to go before it reaches where I think it will go, and there are some roadblock prices it has to break down below before that happens. There's a good probability it will, but no guarantees.

17/20 If it gets down to around $22k, it will have reached its 21 day EMA (exponential moving average, which is just a way of calculating the average price of an asset over a fixed period of time). That's an important level because Bitcoin always bounces back at that point.

18/20 If Bitcoin makes it down that far, there's a very high probability alt coins will finally decouple from Bitcoin and stop going up when it goes up and down when it goes down. This is great news because it means alt season will officially start and alt prices will soar.

19/20 How do I know this? Because it's always happened that way. Things could be different this time, and a lot of people say it is, but the fractals (long-term patterns) from previous bull runs match almost perfectly what's happening this time, so I don't think so. That's TA.

20/20 SUMMARY: Technical analysis is the ability to assign probabilities to price action based on patterns seen on a chart. These patterns are reliable because human psychology does not change, even if the news does. Bitcoin's current patterns could mean alt season is near.

More explainer threads. https://twitter.com/xrpartisan/status/1347653134504652801

See my threads as videos on my YouTube channel. http://www.youtube.com/channel/UCakPUIZ8-ncZSdt5Efrgjng

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CORRECTION: In #17 that's not the 21 *daily* EMA, it's the 21 *weekly* EMA. The rest of the tweet is correct (target price $22k @ 21 weekly EMA, very important level etc).