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7) One way to spot Crypto cycle bottoms.
🕑 Added 2022-12-09 19:41:07 +0000 UTCEverybody wants to find the BOTTOM of the CRYPTO MARKET.
This is one of the most difficult difficulties cryptocurrency investors must face.
But it CAN be done.
Without CONFUSING anyone I will show you.
Simply look at what metrics signaled the bottom of PREVIOUS BEAR MARKETS with accuracy.
I’m going to show you one of my STRONGEST metrics.
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But quickly understand that:
A LOCAL bottom is when the price bounces for a few days to a few weeks.
A CYCLE bottom is when the price has reversed from week to month.
This metric works VERY WELL when looking for a CYCLE BOTTOM.
These don't come very often and when it does happen you should be PREPARED for it.
So let's get into it.
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VOLATILITY INDEX (VIX)
This is a metric that measures volatility in the stock market.
When the VIX is low, volatility is low.
When the VIX is high volatility is high.
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Crypto is somewhat CORRELATED with the STOCK market.
Investors and traders treat crypto the SAME way they treat stocks, so prices tend to TREND the same.
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But crypto is far more VOLATILE.
What does this mean?
If the SP500, which you should know from previous posts is a basket of the top 50 stocks, pumps by 2% expect crypto to pump 10%.
Likewise, if the SP500 falls by 2%, expect the crypto market to fall by 10%.
Now lets get into looking at the actual chart.
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Below is the DAILY CHART for the VIX.
You can see it is very HARD to read this data on this TIME FRAME.
Furthermore, it doesn't actually tell us anything on a low time frame.
Hence why finding local bottoms doesn't work with this metric, this is better for CYCLE BOTTOM.
So let's ZOOM OUT, so we can get a CLEARER picture.
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This is the MONTHLY chart below.
We are NOW able to see a lot more CLEARLY.
We can actually INTERPRET this chart.
What do you notice?
Notice that price tends to stay around the 20 regions.
But on SOME OCCASIONS price will PUMP to the upside.
The 20 region is the NORMAL volatility for the markets.
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Now REMEMBER that:
When the VIX is low, volatility is low.
When the VIX is high, volatility is high.
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So how do we use VOLATILITY to spot BOTTOMS?
This HIGH volatility also aligns with MARKET BOTTOMS.
As a general rule, when the VIX rises the S&P 500 drops.
When the VIX is at a HIGH, the S&P 500 is at a LOW.
Because this high volatility is usually ACCOMPANIED with high fear.
Meaning that it has an INVERSE CORRELATION. (does the opposite)
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So let's check out all the times that the VIX pumped higher to CONFIRM THIS.
We draw a ZONE because we can not draw a SINGLE LINE due to various DIFFERENT peaks.
These are the dates when VIX increased in VOLATILITY.
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Now that we have the dates when the VIX went HIGHER
Let's look at the SP500 below to see the CORRELATION.
Let's see if the times that the VIX WENT HIGHER, the SP500 BOTTOMED?
Look at it.
THE ACCURACY IS VERY HIGH.
Whenever the VIX enters HIGH TERRITORY also known as the blue box,
the market has BOTTOMED.
This is the same with crypto as in the MARCH 2020 price of BITCOIN BOTTOMED, as well as in AUGUST 2015.
So this metric is VERY RELIABLE.
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Now you are probably wondering that box looks so HUGE from 40 - 90.
Where will I know when it REACHED THE TOP?
Firstly, realise that this is a MONTHLY chart, so it will TAKE WEEKS in that ZONE.
So you need to KEEP your eyes on it.
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Secondly, you should be laddering into positions as the VIX goes HIGHER.
The dashed line is a representation of ENTRIES.
You can start by entering 20% of your position and continue to do so on each line.
So that when it finally does REVERSE you would have caught the BOTTOM of the MARKETS.
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This is just one metric that has HISTORICALLY PROVEN to do well at calling BOTTOMS.
Remember this is for CYCLE BOTTOMS.
So when VIX goes high you don't want to miss this OPPORTUNITY and start ENTERING.
History repeats itself.
And it is going to do the same once again.
Stay focused.
@ionicXBT
Comments
replicated on the charts and set alerts, great advice
Nice
