Why Bitcoin Futures and Spot Signals Don’t Match
Bitcoin price rebounded as much as 5% after yesterday’s Federal Reserve meeting. However, the movement has almost fully retraced. What’s interesting about the situation is that traders on a particular platform could have seen this coming much more clearly, while others could have suffered a false exit.
Here is a closer look at a comparison between BTCUSD spot index price charts and BTC CME futures that sheds light on the odd discrepancy. We’ve also shed some light on how to potentially take advantage of these cases.
Why You Can Never Sleep In The Crypto Markets
The crypto market never sleeps. It trades day and night, 24/7. Even stock futures pause for short periods. But when it comes to CME Group’s BTC futures, it more closely tracks the trading hours of the stock market.
CME takes a break from Friday to Sunday evening. If the price of Bitcoin moves significantly during the period when the trading desk is offline, it will leave a gap on its chart that will steadily become a target that will be “filled” in the following days.
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Since some spot market trading days are missing from the CME BTC futures chart, some technical indicators may produce minor deviations. More often than not, these minor deviations are the first signs of a false exit.
Need proof? In the chart below, we compared the BTCUSD spot price index, BTC CME futures, and SPX futures. The Bitcoin Spot Index produced a bullish LMACD cross yesterday, while the CME chart remained bearish. Interestingly, the CME chart more closely mimics the popular US stock index.
BTC CME futures performs more on par with the stock market | Source: BTCUSD on TradingView.com
How to Predict Potentially Fake Bitcoin Exits Using Spot Vs CME Comparison
The LMACD – the logarithmic version of the Moving Average Convergence Divergence indicator – is considered a lagging indicator. For this reason, bullish or bearish crossovers are generally considered reliable signals to enter or close a position.
It is unclear if the above gap occurred naturally due to missing trading days on the chart, or if something else was at play. The crossover seems to have been used as a trap to bulls, eliminating all last-minute longs. The daily momentum is currently bearish again, so there is a risk that the decline will continue until it recovers.
Related Reading | Time vs Price: Why This Bitcoin Correction Has Been the Most Painful Yet
Traders do not need to completely abandon the indicator, but rather can use these discrepancies between the performance of the two indicators to try to predict when false exits, running stops, or other nasty moves will occur.
The last time the LMACD produced a false signal on spot trades, but not on the CME BTC chart, was the exact November 2021 peak. Is there any chance that this latest false out was a sign that the bottom is there, or is it just suggesting more downside to come?
The missing bullish crossover called the top in November 2021 | Source: BTCUSD on TradingView.com
Bitcoin bulls need to push back the momentum in their favor on the daily timeframes and follow with enough strength to force longer timeframes to follow.
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Featured image from iStockPhoto, Charts from TradingView.com