How to Identify Altcoin Bottoms and Trend Reversals

October 14, 2018 / by Noah Hornaday

From 2000-2002, Amazon’s stock dropped 95%. Since then, the stock went on to rise over 35,000%. It is safe to say those who sold near the lows in 2002 are kicking themselves. Of course, not every altcoin is going to go on to be as world-changing as Amazon. It’s likely most of them won’t, to be honest, but the point is that the time to sell any asset is not when it has fallen 80-90% from its highs.

Many dreamed of entry prices we are seeing today across the landscape during the Q4 run-up of 2017. Now that those prices have retuned, the same group think of emotion that led many to buy the top is causing many to cower from buying cheap, and many are likely selling the bottom. This nothing new. In 2014, Litecoin fell 98% to just below a dollar only to see highs above $300 last year.

Catching exact bottoms and selling exact tops is nearly impossible, and the sooner you make peace with that, the more successful your trading and investing will become. That said, there are signs on charts that can tell us ahead of time that a bottom is near if not already in. When these signs appear, the time to start scaling in and building a position slowly, instead of all at once, has come.

Definition of an uptrend: An uptrend is a label given to an asset that is experiencing an overall upwards movement. In an uptrend, the swing lows and swing highs are higher than the ones that were posted before it. By this definition, the first sign of an uptrend at its most basic meaning would be what is called a higher low. The greater the amount of time that you witness these swing points, the more trustworthy the signal will be. The moment you see a higher low on a significant time frame (daily and above), you can begin keeping close track of the asset’s chart as a confirmed uptrend is just one step — posting a successive higher high — away. The first higher low often comes after a rounded downtrend and sell off, showing the steepness and strength of the selling is tapering off beforehand. Looking at Stellar Lumens from last year, we see a very textbook bottom was formed before taking off into an astounding uptrend.

Volume is another telltale sign that a volume has potentially been found at the end of a downtrend. Capitulation describes the final event of panic selling in which a large majority of market participants can no longer handle the drawdown on their asset and puke up their holdings, filling up larger players (smart money) orders to the point they are ready to support a new uptrend. This large uptick in volume usually coincides with larger than usual candles as well as wicks beneath the candles showing buying pressure. This was perfectly depicted at the bottom of the BTC bear market in 2014.
For further confirmation of a bottom/reversal, you can also use indicators such as moving averages or the ichimoku cloud. For a simple moving average signal of a bullish trend reversal, most people consider a “golden cross” to be a sign that the trend is officially bullish. A “golden cross” occurs when the 50 MA crosses above the 200 MA, traditionally on the daily chart. For a more complex moving average derived signal, you could look to the ichimoku cloud. The cloud is created by a set of algorithmic moving averages and can be used for support/resistance levels, entries/exits, and determining trends. The cloud itself, known as the kumo, is the large green and red object shown by the indicator and is accompanied by the slow-moving kijun (red line) and the fast-moving tenkan (blue line). The last component that the ichimoku cloud is derived from is called a lagging span (green line) which is a depiction of price action shown, typically 26-30 periods behind the current candle. An uptrend is confirmed by the cloud through four different metrics.

A bullish Tenkan-Kijun cross: This occurs when the faster-moving tenkan (blue line) crosses above the slower moving kijun (red line). Think of this as being similar to a traditional “golden cross” using the 200 and 50 MAs.
A bullish future cloud: The cloud extends further than present price action and can shift from bearish (red) to bullish (green) before price does. During an uptrend, you want to see that the cloud at the furthest point in the chart is bullish (green).

Price above the cloud. When price is trading above the cloud, the cloud will act as bullish support beneath it.
The lagging span is also above the cloud. This is usually the final signal that price is currently trending upwards based on the cloud.

Once again, Stellar Lumens provides a perfect example of a bullish trend based on the cloud during the reversal in 2017:

The day the uptrend was confirmed officially.

The move upwards that followed.

The part of an asset’s market cycle that traders and investors need to take part in is the part that is the shortest-lived but gains the most attention. The least exciting one, which reaps the most benefits, is the lull and sideways action that precedes the big move upwards. By mastering the skills needed to identify these moments in price, you can get a better seat on the roller coaster ride known as a crypto bull market. On top of that, these skills and strategies can be used inversely to identify when it is time to get off the ride in a systematic manner, regardless of the euphoria in the air.

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