1. Price Power Law
A power law is a mathematical principle that describes a functional relationship between two quantities where one quantity varies as the power of the other.
Taking Bitcoin as an example, the power law model can help us find the fair value (red line) and expected bottom (orange) of Bitcoin.
Usually the part reaching the red line (minus two standard deviations) is in the fixed investment range
When it reaches the orange part, it is the bottom.
When the green part (positive two standard deviations) is reached, it is in the batch escape range.
Of course, the price power law needs to be combined with multiple indicators (bottom range, fair value, etc.)
2. Bottom range
Some friends may ask, when is the relative bottom? You can refer to the indicators in the figure below to make decisions
The following figure is the result of logarithmic regression of the period when#Bitcoinhit the bottom. When it reaches the yellow line, it is usually the bottom. If it reaches the orange part, enter the market decisively.
3. Fair value
All historical data can be used to predict the fair value of each cryptocurrency
If the fair value of a currency is undervalued (red line), that is, its price is lower than its fair value, then we have the opportunity to consider using the dollar cost averaging #DCA strategy for fixed investment.
On the contrary, if the fair value is considered to be overvalued (higher than one standard deviation, i.e. the green line), then we should consider starting to exit in batches.
4. Key Moving Averages
Simple Moving Average#SMAand Exponential Moving Average #ema Technical indicators are often used to determine the average price of an asset over a certain period of time.
The Bullish Support Band (BMSB) is the area between the 20-week SMA and the 21-week EMA, which provides support during bullish markets.
If $BTC price is below BMSB, it might be a good time to buy
Conversely, when the price is well above#BMSBit might be a good time to sell
5. Dominance
Dominance refers to the market share or dominance of a particular cryptocurrency (not just Bitcoin) in the total market value of all cryptocurrencies. It indicates the relative influence and control of a particular cryptocurrency over the entire market.
If Bitcoin $BTC dominance is greater than 50%, it is usually Bitcoin season, not alt season
6. Profit and loss ratio
The circulating cryptocurrency can be divided into two categories: profitable and loss-making. Profitable supply refers to the amount of current price higher than the price at the last move, while loss-making supply refers to the amount of current price lower than the price at the last move. Moves can be understood as purchases or transactions.
When the supply of profitable Bitcoin increases, selling pressure will usually increase. If 100% of the circulating supply is profitable, the selling pressure will reach its peak and there will be a risk of a pullback.
In addition, as the supply of profitable Bitcoin decreases, selling pressure will also decrease because when the Bitcoin price falls below the purchase price of investors, their motivation to sell Bitcoin and take a loss will be weakened, so the number of sell orders will decrease, which may cause the Bitcoin price to stabilize or even rise.
Summary: Profitable supply and loss supply can be used to identify potential market tops and bottoms. For example, if the profitable supply increases significantly, it may indicate that the market is overbought and the price may be expected to pull back. If the loss supply increases significantly, it may indicate that the market is oversold and the price may rebound.
7. Altcoin Seasonal Index
Following Article 5, most of our friends will buy altcoins, so when should we enter or leave the market? Here comes the altcoin seasonal index (need to be combined with the Bitcoin dominance index)
The Altcoin Seasonal Index#ASIis determined by evaluating the proportion of the top 50 altcoins that have outperformed Bitcoin in terms of return on investment#ROIover a specific timeframe
If less than 25% of altcoins exceed Bitcoin’s ROI within 90 days, it is called a Bitcoin season, indicating that Bitcoin is outperforming most altcoins.
When more than 75% of altcoins have a 90-day ROI higher than Bitcoin #BTC☀️ , it means that the altcoin season has arrived.
When the Altcoin Seasonality Index is between 25 and 75, it is considered a neutral phase, indicating that neither Bitcoin nor Altcoins have an overwhelming advantage in terms of investment returns during this period, so it is called a non-Altcoin Seasonality.
8. Power Law of Total Cryptocurrency Market Value
Some friends may wonder, what is the overall trend of cryptocurrency now? This indicator is used - the power law of the total market value of cryptocurrency
Negative two standard deviations (red part) overall fixed investment range
-60% means the market is extremely undervalued, so we can start selling our house and go all in.
When the total market value reaches +2SD (positive two standard deviations), it can be basically determined that the market is overheated. At this time, we need to formulate our exit strategy and flee in batches.
Of course, the above indicators can also be used with the#Fearand Greed Index and #Google Trend or the#ColorfulRedChartand#AHR999Hoarding Index
Google Trends: Bitcoin search popularity close to 100 indicates a peak, and a gradual decrease in search popularity may indicate that the market has bottomed out or is going sideways, thus providing a buying opportunity
9. Price and risk indicators
Some friends will use the DCA strategy to invest in Bitcoin in a bear market, and this indicator can be used
The risk range is from 0-100%, where 0% is the lowest risk area and 100% is the highest risk area (usually corresponding to price)
For example: I plan to invest $50 in Bitcoin every week
Invest $50 when the risk is between 45% and 50%
If the risk drops to 40-45%, invest $100
If the risk drops to 35-40%, invest $150
Increase buying when risk is low, and increase selling when risk increases. Short-term traders can consider selling the maximum amount when the risk reaches 100%.
At this point, the sharing of the nine indicators for bottom-picking and top-selling is complete. I wish you a happy trading and make more money in the bull market.
