Using psychology, large price moves, and volume to spot bottoms
Updated
I saw a recent video where the host (Marc) was explaining that today winners were those that were able to understand what goes on in other people's brains, how they feel and what their goals are, find their breaking points, and see them coming.
In the US stock market the underlying economics got ignored and the price keeps going up. It goes, or went up, because of all the new investors joining and probably also because of the massive ETF market where they use tricks to minimize taxes, and money managers push to get as much AUM as possible which means they keep buying everything.
When do bottoms often form? When the herd gets broken. With Bitcoin they kept calling bottoms in 2018, the 11k bottom, 9k, 6k. Then they held the bag for months at 6k and kept hoping, time slowly taking its toll on their morale. When Bitcoin went to 3k they were devastated, in panic, and lost hope. And then it went up. They started building their hopes up "maybe I can get my money back", then were thrilled and started laughing at bears, and finally got euphoric and complacent "the bull market is back 100% confirmed, how are people still bearish? Bitcoin bull market is back it is a proven fact".
And then... It started a drawn up bear trend, the bear market was not over. When the price dropped below 7000 that was really the final hit. They went through so much and thought it was over. They just surrendered. Bitcoin saw a drop of more than 20% in 1 hour 3 times. In a single day the price dropped more than 40%, and on huge volume.
The market found their breaking point.
If the average Bitcoin investor had held on, then it would mean other bagholders would also have held on, and so there would not have been a "SELL EVERYTHING NOW" event, and the price would have continued its slow death grind down forever. They either sell at the bottom or the price slowly goes to zero. It is impossible for the average investor to win, resistance is futile.
Technically (on the chart) there are 2 things we can look at to find bottoms: violent selling and high volume.
For the volume it is a built-in indicator, and for the violent selling I made one in november 2018 when Bitcoin was close to its fake bottom:
So first of all I am happy that with the default setting it worked! 3000 in 2018 was not detected as bottom but march 2020 was!
Some examples on the daily chart. As always, it is better to not filter enough and then go manually check, than to filter too much and miss the move when it happens.
If you bought that 2015 bottom and actually held:
I'll speculate that this (only) works in the large presence of dumb money. It may work otherwise but better safe than sorry.
After the violent 1987 crash:
Of course this only works for those that have cash available, not underwater greedy fomo permabulls.
As a currency speculator that does little long term holds, little investing, there will always be available side cash for this.
Oh and you don't always get a nice obvious volume spike & clear bottom so this cannot be relied on alone (obviously...):
Little professionals trade it therefore Bitcoin is in the presence of dumb money so it works very well 👍
It might be the last time though, it already went mainstream and nothing lasts forever (except gold it literally lasts forever).
Picking bottoms looks good, it especially looks very attractive to novices, but it's not that great I think.
It's not THAT easy if you're not emotional (and it's totally impossible if you are, modulo luck) but it might be easier than the rest, I don't know actually, is it?
Still it's pretty nice, but not the only way to make money, I like looking for small chunks myself, works really well too:
Finally, this is a good way to spot bottoms, not all bottoms form this way, and not everything this will filter will be a bottom, the thinking part is still necessary, but very often will bottoms form when there is heavy selling (price drop + volume) in a deep bear market.
In the US stock market the underlying economics got ignored and the price keeps going up. It goes, or went up, because of all the new investors joining and probably also because of the massive ETF market where they use tricks to minimize taxes, and money managers push to get as much AUM as possible which means they keep buying everything.
When do bottoms often form? When the herd gets broken. With Bitcoin they kept calling bottoms in 2018, the 11k bottom, 9k, 6k. Then they held the bag for months at 6k and kept hoping, time slowly taking its toll on their morale. When Bitcoin went to 3k they were devastated, in panic, and lost hope. And then it went up. They started building their hopes up "maybe I can get my money back", then were thrilled and started laughing at bears, and finally got euphoric and complacent "the bull market is back 100% confirmed, how are people still bearish? Bitcoin bull market is back it is a proven fact".
And then... It started a drawn up bear trend, the bear market was not over. When the price dropped below 7000 that was really the final hit. They went through so much and thought it was over. They just surrendered. Bitcoin saw a drop of more than 20% in 1 hour 3 times. In a single day the price dropped more than 40%, and on huge volume.
The market found their breaking point.
If the average Bitcoin investor had held on, then it would mean other bagholders would also have held on, and so there would not have been a "SELL EVERYTHING NOW" event, and the price would have continued its slow death grind down forever. They either sell at the bottom or the price slowly goes to zero. It is impossible for the average investor to win, resistance is futile.
Technically (on the chart) there are 2 things we can look at to find bottoms: violent selling and high volume.
For the volume it is a built-in indicator, and for the violent selling I made one in november 2018 when Bitcoin was close to its fake bottom:
So first of all I am happy that with the default setting it worked! 3000 in 2018 was not detected as bottom but march 2020 was!
Some examples on the daily chart. As always, it is better to not filter enough and then go manually check, than to filter too much and miss the move when it happens.
If you bought that 2015 bottom and actually held:
I'll speculate that this (only) works in the large presence of dumb money. It may work otherwise but better safe than sorry.
After the violent 1987 crash:
Of course this only works for those that have cash available, not underwater greedy fomo permabulls.
As a currency speculator that does little long term holds, little investing, there will always be available side cash for this.
Oh and you don't always get a nice obvious volume spike & clear bottom so this cannot be relied on alone (obviously...):
Little professionals trade it therefore Bitcoin is in the presence of dumb money so it works very well 👍
It might be the last time though, it already went mainstream and nothing lasts forever (except gold it literally lasts forever).
Picking bottoms looks good, it especially looks very attractive to novices, but it's not that great I think.
It's not THAT easy if you're not emotional (and it's totally impossible if you are, modulo luck) but it might be easier than the rest, I don't know actually, is it?
Still it's pretty nice, but not the only way to make money, I like looking for small chunks myself, works really well too:
Finally, this is a good way to spot bottoms, not all bottoms form this way, and not everything this will filter will be a bottom, the thinking part is still necessary, but very often will bottoms form when there is heavy selling (price drop + volume) in a deep bear market.
Note
Well the ripple coin xrp price just had a massive sellout on very high volume.I don't really like this alt, and it's not even bouncing yet.
It is looking like Bitcoin on MtGox
Anyway it's quite early still, we'll see what will happen. Bearish bias on that crypto.
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