Bitcoin has formed two successive gaps on the derivatives platform.
Veteran trader Peter Brandt appears to have taken a jab at Bitcoin traders who make decisions based on Bitcoin Chicago Mercantile Exchange (CME) gap formations alone.
The classical chartist did this in a tweet today, pointing out that Bitcoin has formed two successive gaps on the derivatives platform; he tweeted:
“Two huge unfilled gaps. I encourage you hot shot young guns to go short.”
Two huge unfilled gaps. I encourage you hot shot young guns to go short $BTC pic.twitter.com/YVDiEhhifD
— Peter Brandt (@PeterLBrandt) March 19, 2023
What is the CME Gap?
To understand what the CME gap is, one must first understand how the CME operates. It is worth noting that while crypto can be traded round the clock on crypto exchanges, CME closes on the weekend and parts of the day.
Hence, while the futures price on the CME is fixed during this break, Bitcoin’s price continues to move on spot exchanges. A gap is formed to catch up to the spot price when the CME opens. This gap is what is known as the CME gap. Consequently, the gaps identified by Brandt are the result of Bitcoin’s impressive rallies over the last two weekends.
Notably, traders are often wary of these gaps, as they tend to fill, implying a potential correction or reversal. However, as even Brandt points out in the comments, this is not always true.
“The dirty little secret is that some gaps may never be filled,” Brandt tweeted.
The dirty little secret is that some gaps may never be filled
— Peter Brandt (@PeterLBrandt) March 20, 2023
Consequently, the CME gap, like every other indicator, is probabilistic, and taking trading decisions off of that alone may be foolhardy. In addition, gaps that fill could take weeks or months and would likely still follow overall price action.
Price Action Amid a 45% Rally
It is worth noting that Bitcoin has formed a significant close above the weekly horizontal resistance level. It indicates the fulfillment of the inverted head and shoulders chart pattern identified by Brandt last week.
How high the price would go from here remains to be seen. In truth, there are several possibilities. The Bitcoin price could continue its impulsive move up while forming small corrective patterns.
It could also retest the neckline before further continuation, preferably in the form of a steep bull flag.
Another possibility is that it could form a steeper correction to confirm a trend line formation.
Bitcoin investors appear super bullish as uncertainty surrounding banks has given rise to speculation of a pause in Fed rate hikes. Notably, the leading digital asset is up 45% since the Silicon Valley Bank collapse, as highlighted by Galaxy Research’s Alex Thorn yesterday.
#bitcoin up 45% since #SVB was taken over by the FDIC 👀 pic.twitter.com/64wuP7VxAV
— Alex Thorn (@intangiblecoins) March 19, 2023
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