Expanding on my previous post, we can apply this technique to predict price movement on the higher time frames (8 Hour in this case).
Step 1 – Drawing the Boxes
– Fundamentally what we want to do, is look at the price movement and figure out where clusters of stop loss would be contained.
– To do this, we want to look for the areas of upwards (in this example) consolidation that hasn’t dropped down to trigger the orders.
– I have drawn boxes here close to the candle set, and extended them out past where price currently is to prove that these areas have not been reclaimed or had the stop loss orders triggered.
PLEASE NOTE: Stop Loss orders and Liquidation Orders are very unique. Unlike limit orders that will automatically fill if price is above or below, these orders do not fill unless price CROSSES the exact price of the order. In essence, it’s important to understand that looking back on the chart we can understand there are limit orders for sells (in this example) that’s below the current price. If a limit sell order was to be placed at a lower price, it would fill automatically if price is above.
– We can anticipate a take profit (locally in this example) at 74,000. SHORT entry should be where the orders begin to set off to a large degree, in this example, entry would be BELOW where price currently is, at 122,200. We want to make sure that the stop loss orders will be enough to carry the price through these blocks. Stop loss can be places above the local wick high (where the SHORT stop losses have already been filled) at 123,900.
Step 2 – Predicting and Understanding Wick Speed
– To predict how fast the movement will complete, we need only evaluate the amount of TIME allowed for positions to be placed (longs in this example). Very simply because the more time provided to traders in an upwards consolidation, the more positions and consequently stop losses and liquidations will be placed below the price.
– More TIME = More Orders = Faster Wick Speed. To understand this another way, imagine there was 2 scenarios where regular limit buys were placed. Scenario 1 has 100 people placing buy orders, Scenario 2 has 10,000 people placing buy orders. Scenario 2 would move price higher at a faster speed, and to a greater distance. In other words we are predicting VOLUME of STOP LOSS ORDERS.
PLEASE NOTE: Stop Loss orders move price at a greater volume compared to the position entry. If Trader A uses $1,000 to open a Long, and uses a leverage of 10x – his Stop Loss or Liquidation order is to close the entire leveraged position size. While he is injecting $1,000 of liquidity into the market with his order, he is consequently leaving a sell order underneath his entry for $10,000 (leveraged position size).
PLEASE NOTE: The placement and amounts contained in stop losses or liquidations are not available to the public. Exchanges do not need to disclose that information, and you can assume it’s only shared with the market makers or liquidity providers. Heatmap Platforms such as Coinglass have disclaimers that state it’s not based on true date and is only a prediction.
SUMMARY:
I hope this serves you with a practical demonstration of how we can use Stop Loss analysis to predict price movement.
I also hope that you can understand you’re able to do this yourself by developing the vision to quickly see it in the chart. We are blessed in that we simply need to look backwards to see where we will be going next, as the orders that move Bitcoin are previously embedded in the chart.
Yours truly and all the best,
– DD
If you have any questions or want further clarifications – please ask in the comments and I will answer you.
