Bitcoin is crashing and although that can be scary and lead to losses for many who bought near the top, for those that have been waiting patiently or have more capital ready on the sidelines to buy the dip, this could be their chance to catch the bottom.
Just like timing the top wasn’t easy, spotting the bottom can be even more challenging. But just like buying the blood on Black Thursday led to more than 10x returns for those that took the risk, buying the recent crypto market carnage at the bottom could lead to life changing wealth.
Here’s a list of trading indicators investors can use to spot the Bitcoin bottom, how to use them, and some information on what caused the selloff in the first place.
What Caused The Bitcoin Selloff?
“Show me the charts and I’ll tell you the news” is a quote from economist Bernard Baruch who believed that changes in news and sentiment were predictable with technical indicators and chart patterns.
And although the timing of Elon Musk bashing Bitcoin’s impact on the environment and China cracking down on crypto seem suspect, the right technical indicators signaled that the trend change was coming one way or another.
What Trading Indicators To Use To Find The Bottom?
The same way technical indicators were able to time the top perfectly in many cases, they can also be used in a similar fashion to time the bottom, here’s how.
Relative Strength Index
The Relative Strength Index measures the strength of a trend, and also signals when assets reach oversold or overbought levels. However, these tools can be tricky. For example, the RSI stayed overbought on daily timeframes for the longest period ever to start the bull run. Had someone shorted Bitcoin then, they would have been wrecked.
However, waiting until the monthly RSI reached overbought resulted in a 50% drop in the following months. On the downside, however, waiting for the RSI to drop to oversold on such time frames could have you waiting for quite a long time.
Instead, traders can look for a hidden bullish divergence on the daily RSI near oversold levels to expect a bounce. In bull markets, bull divs play out with serious power and lead to far more upside.
The MACD gets a lot of flack for being a lagging indicator, however, it crossing bearish on the weekly timeframe in Bitcoin was the signal to sell your coins to buy back cheaper. The same bearish crossover happened in 2019 and 2017 when Bitcoin topped.
Bitcoin has always bottomed when the weekly MACD crosses bullish once again. But here’s where the lagging indicator reputation can hurt traders. Because Bitcoin moves fast in a bull market, a bullish crossover on the daily might be necessary or traders could be stuck waiting too long to enter, missing out on much of the early gains from a surprise reversal.
The Bollinger Bands themselves are a versatile tool with many uses. The Bollinger Bands recently tightening told the market that a big move was coming, and after several pushes to the top band without any further upside, the rubber band-like effect of the indicator sent Bitcoin towards the bottom of the bands. But was the first touch the bottom?
Passing through the middle-BB on weeky timeframes was a bearish sign in Bitcoin, that could lead to further consolidation or a retest of lows. So long as the middle-BB holds on the two-week timeframe, the bull market is still on. Buying at the middle-BB, a simple moving average, on the two-week timeframe during the last bull market was the last buy signal before all-time highs were set. And it could be back now.
What To Do When Bitcoin Has Bottomed?
Is Bitcoin a good investment again? When any of the above signals appear, it’s time to start considering that the bottom is in, and that Bitcoin is ready to bounce toward new highs. More than one signal mentioned above is further confirmation that the trend could be turning around, and it could have the potential for a profitable long increase. If things continue to turn bearish for crypto, using PrimeXBT, traders can also short the market and profit when things begin to crash.
PrimeXBT offers CFDs on crypto, forex, stock indices, commodities, and more all under one roof. There’s also built-in trading tools from TradingView complete with all of the technical indicators mentioned here to assist you with planning and executing a strategy.