While most crypto market observers remain focused on Bitcoin’s ongoing struggle to $31,000, Ethereum recently closed above the psychologically important $2,000 level for the first time in weeks. Now that it is about to close down for four straight days, let’s take an evidence-based approach and determine if four straight days down for Ether is historically bullish or bearish going forward. Let’s dive in!
Ethereum close above $2000 followed by a pullback
After closing at an impressive multi-week high and returning above the $2000 level on July 13, Ether has pulled back for four straight sessions, one of the conditions that we will test momentarily. To add better context to the test, we’ll also add two more conditions that require (1) Ether to be above its 200ma and (2) its 200ma to be rising. Because? The 200ma and its slope act as simple filters to help determine the market regime. For example, this latest four-day pullback in Ether occurs in an improving market where ETH is above the 200ma rise. If the current four-day pullback were to occur in a downtrending market regime, we would require ETH to be below its 200ma to the downside.
Ethereum daily chart | ETHUSD on TradingView.com
What does this pullback in Ethereum suggest for its price? To find out, we will analyze all the signals from the start and also compare them with a simple “buy and hold” approach. This will provide us with a baseline to better understand today’s test results.
Four fewer days compared to buy and hold
The following time-out chart shows the historical results of Ether’s current technical setup at the top with a simple “buy and hold” approach at the bottom. In other words, we will show what-if results using various hold-outs only for when Ethereum has closed lower for four consecutive days while above its 200ma rise at the top. The lower results will act as a reference, assuming a hypothetical purchase of ETHUSD without conditions of any kind and an exit n days later.
Average Business Comparison | SOURCE: REK Intelligence, Tableau
While both approaches show positive average trading results on every exit we test from 7 days to 90 days, our “buy and hold” baseline actually beats the current technical setup of four days down. The only exception is the “90-day exit” where the current setting slightly exceeds the historical “buy and hold” average, moving from 62.1% to 59.4%.
But while the average business statistic is still important, it doesn’t always tell the whole story. When looking at a comparison of the largest hypothetical losses for both approaches using the same conditions described above, note that the largest losses (i.e. worst trades) for the current four-day setup are much lower than for a simple “buy and hold”. getting closer. This larger loss comparison indicates that while the current setup may not beat “buy and hold” in terms of average trading, Ethereum may currently have lower risk exposure than usual, something most traders seasoned will appreciate.
Biggest Loss Comparison | SOURCE: REK Intelligence, Tableau
While the past does not predict the future, based on our analysis, Ethereum appears to be poised for upside potential, mostly in line with typical “buy and hold” expectations. In other words, not overly exciting and seemingly lacking in significant upside at the moment. That being said, the risk also looks lower than usual relative to the larger “buy and hold” loss statistics. Traders take note. Ethereum may now be offering its typical return profile based on its current technical setup, but with lower overall risk exposure.
DB the Quant is the author of the REC intelligence report newsletter about Substack. Continue @REKintelligence on Twitter for evidence-based crypto market research and analysis. Important Note: This content is strictly educational in nature and should not be considered investment advice. Featured images created with Tableau. TradingView.com charts.
