BTC Risk Model: A Single Article Explaining Long-Term/Short-Term Trading Considerations

Author: Murphy

When the price of BTC is suppressed by STH-RP, it means that when the price touches the short-term cost moving average, a lot of selling pressure will be generated, which is why it cannot break through. This is often the beginning of a large-scale downward trend (as indicated by the orange arrow in the figure).

Therefore, we regard the STH-RP model as an important risk signal!

However, once the downtrend begins, the BTC price may deviate significantly from STH-RP, and even if there is a rebound afterward, it will remain far off. Therefore, we need to adjust the algorithm to provide a more reliable value, such as the green line in the chart.

(Figure 1) Risk signal: Short-term holder cost-based model

Thus, we see a visual process of potential energy decay: 1. Red line encounters resistance → 2. Green line encounters resistance → 3. Breaks through the green line → 4. Red line encounters resistance → 5. Breaks through the red line, indicating the end of the bear market.

Of course, there might not be a 4 after 3, and it might go straight to 5. This is usually caused by a low-probability event that greatly boosts market confidence, thus instantly reversing the trend.

Clearly, what we are currently seeing is that BTC is in the second stage mentioned above; that is, it is encountering resistance at the green line, and both the red and green lines are continuing to decline. In other words, as long as BTC does not break through the green line, the "rebound height" will become increasingly lower, and the probability of a downward move is greater.

As of yesterday, the green line was at $72,000.

Let's look at it from another angle: from a technical perspective, the pattern that BTC followed in March is very similar to that in January.

(Figure 2) BTC/USDT Daily Candlestick Chart

Both were suppressed by the downward trend line, and both experienced two false breakouts (bullish traps) on the daily chart. After the false breakouts, the trend line indicator was pulled up, so we need to eliminate this interference and stick to the previous trend line position.

For example, between January 21st and 28th, BTC consistently failed to break through $90,586 (the red trend line) and ultimately chose to continue its downward trend. Similarly, between March 20th and 26th, it again failed to hold above $70,996 before falling to $65,548.

Based on the current pattern, the probability of a continued downward trend is far greater than the probability of an upward trend. This conclusion is completely consistent with the results we obtained using the STH-RP risk model.

Finally, let's get back to the trading aspect: if you feel you don't understand it or aren't confident, don't act rashly, lest you make more mistakes the harder you try!

For short-term trading, my personal strategy is to open a short position if the price rebounds to near $70,996 to validate my judgment. This would avoid high leverage and allow for a possible "false breakout," with a stop-loss order placed if the price breaks above $72,000.

For traders looking to build long-term positions, consider starting with phased entry after entering Phase 3 of the STH-RP risk model, continuing until Phase 5 when the position is fully invested. This approach ensures you buy at the relative bottom of the entire bear market; you won't miss out, costs are controllable, and the certainty is high.