The Correlation Between BTC & The NASDAQ
➡️ In this post, we highlight the significant correlation between BTC and the NAS100. Anyone attempting to trade BTC or make projections should probably be aware of this correlation if they wish to understand the price action in a meaningful way.
Firstly, when we talk about correlations, we must understand a couple of points:
1. A correlation simply means that one equity will follow the price of another equity to a very similar degree. You can imagine this scenario as a little brother following a big brother on a mountain bike course. The little brother wants to follow the older sibling, but will not perform identically.
2. Volume breaks correlations. If equity B is correlated to equity A, but equity B receives a massive spike in volume (for whatever reason), the correlation will break for a period of time. However, when the volume normalizes, the correlation is likely to resume, but with a bullish lean for equity B.
3. Despite equity B being correlated to equity A, equity B does not move the same percentage amounts as equity A.
4. There are bullish and bearish correlations. A bullish correlation means equity B will go up only when equity A goes up, but equity B has a "healthier" chart -- is up more YTD, is holding more supports, is breaking more resistances, etc. A bearish correlation means equity B follows equity A, but the chart of equity B is "less healthy" -- is down more YTD, breaks more supports, does not break resistances, etc. For example, let's look at a scenario when equity B is correlated to equity A in a bullish manner. Both equities have a resistance above, but equity B is closer to its resistance due to the bullish correlation. One day, equity A makes a move to the upside, meaning equity B is likely to follow. In this case, because equity B is correlated to equity A, equity B's resistance level is less important than the fact equity A is going up, so equity B breaks the resistance level . In another scenario, equity B might seem like it's going to break its resistance level , but equity A is not ready to go up, therefore, equity B will not see any meaningful follow-through above the resistance, leaving the traders who follow equity B frustrated and wondering what happened. Well, big brother was not ready to continue, so despite the fact little brother wanted to go on, he ended up turning back to wait for big brother.
5. Of course, nothing is written in stone, and markets vary significantly in their behavior. This is only a guide or a framework to consider.
➡️ When it comes to BTC and the NAS100, we can currently observe a bearish correlation. BTC seems to follow the NAS100, but has a "less healthy" overall chart. This can be observed by looking at the price action of each chart. The NAS100 recently broke a swing high from June 2nd, but BTC never come close to this level.
➡️ BTC currently forms fractal levels at the same time the NAS100 does, and seems to see momentum shifts alongside the NAS100.
➡️ However, BTC can sometimes indicate a "risk on" environment over the weekend, when it actually LEADS the market, and we see a NAS100 bounce the following Monday. To me, this says certain market players are willing to put more risk on the table, which indicates they are content with the current state of the market and will not turn into big sellers in the short term on the NAS100. The same thing can happen in reverse, when certain big players decide it's a "risk off" environment.
Unless something changes significantly, I don't expect BTC to move meaningfully to the upside unless the NAS100 can regain full bull control, and I don't expect BTC to drop to lower lows unless the NAS100 sees continued selling pressure in the week(s) ahead.
Firstly, when we talk about correlations, we must understand a couple of points:
1. A correlation simply means that one equity will follow the price of another equity to a very similar degree. You can imagine this scenario as a little brother following a big brother on a mountain bike course. The little brother wants to follow the older sibling, but will not perform identically.
2. Volume breaks correlations. If equity B is correlated to equity A, but equity B receives a massive spike in volume (for whatever reason), the correlation will break for a period of time. However, when the volume normalizes, the correlation is likely to resume, but with a bullish lean for equity B.
3. Despite equity B being correlated to equity A, equity B does not move the same percentage amounts as equity A.
4. There are bullish and bearish correlations. A bullish correlation means equity B will go up only when equity A goes up, but equity B has a "healthier" chart -- is up more YTD, is holding more supports, is breaking more resistances, etc. A bearish correlation means equity B follows equity A, but the chart of equity B is "less healthy" -- is down more YTD, breaks more supports, does not break resistances, etc. For example, let's look at a scenario when equity B is correlated to equity A in a bullish manner. Both equities have a resistance above, but equity B is closer to its resistance due to the bullish correlation. One day, equity A makes a move to the upside, meaning equity B is likely to follow. In this case, because equity B is correlated to equity A, equity B's resistance level is less important than the fact equity A is going up, so equity B breaks the resistance level . In another scenario, equity B might seem like it's going to break its resistance level , but equity A is not ready to go up, therefore, equity B will not see any meaningful follow-through above the resistance, leaving the traders who follow equity B frustrated and wondering what happened. Well, big brother was not ready to continue, so despite the fact little brother wanted to go on, he ended up turning back to wait for big brother.
5. Of course, nothing is written in stone, and markets vary significantly in their behavior. This is only a guide or a framework to consider.
➡️ When it comes to BTC and the NAS100, we can currently observe a bearish correlation. BTC seems to follow the NAS100, but has a "less healthy" overall chart. This can be observed by looking at the price action of each chart. The NAS100 recently broke a swing high from June 2nd, but BTC never come close to this level.
➡️ BTC currently forms fractal levels at the same time the NAS100 does, and seems to see momentum shifts alongside the NAS100.
➡️ However, BTC can sometimes indicate a "risk on" environment over the weekend, when it actually LEADS the market, and we see a NAS100 bounce the following Monday. To me, this says certain market players are willing to put more risk on the table, which indicates they are content with the current state of the market and will not turn into big sellers in the short term on the NAS100. The same thing can happen in reverse, when certain big players decide it's a "risk off" environment.
Unless something changes significantly, I don't expect BTC to move meaningfully to the upside unless the NAS100 can regain full bull control, and I don't expect BTC to drop to lower lows unless the NAS100 sees continued selling pressure in the week(s) ahead.
➡️ View trading as a numbers game
➡️ Take on the business model of a casino
➡️ Find an edge that puts odds in your favor over a set of trades
➡️ Take on the business model of a casino
➡️ Find an edge that puts odds in your favor over a set of trades
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