What is more meaningful than discussing the BTC exit price is to learn to identify the turning points of the big cycle

24-04-12 16:22

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Original author: bonnazhu, Nothing Research

Editor's note: As April progresses, the Bitcoin halving is getting closer. Recently, the price of gold has broken through historical highs, and the prices of silver and copper have also soared, but BTC, which has strong safe-haven properties, has been hovering around 70,000. (Reference reading: "Bull Market in Geopolitical Crisis: Why is BTC still hesitant under multiple positive factors?".) Perhaps, we are still in the early stages of this round of bull market. Nothing Research team member bonnazhu shared on X how to identify the turning point of the big cycle. BlockBeats reprinted the full text as follows:

Identifying the turning point of the big cycle is much more meaningful than discussing how long the bull market can last and the exit price of $BTC and $ETH. Although the ways to judge the turning point are different, there is only one truth to verify, that is, it must be confirmed on the K-line chart. If you judge the turning point too early or too late than the market, you will suffer. I personally think that the most effective way to verify, and even the indicators that can be used directly to judge the turning point are only: 1) RSI divergence; 2) Moving Average Arrangement.

TLDR:

Whether it is $BTC or $ETH, although the weekly RSI has been in the overbought area for a while (this is very common in the bull market), there has never been a real weekly divergence. The daily and weekly moving averages are also in a bullish state, and there is no sign of turning around. Most prices and transactions are also running above the short-term moving average. The callback has not touched the long-term moving average, and even the 100-day moving average at the daily level has not been broken. Obviously, the market is still far from the end. There will certainly be shocks and callbacks in the future, but these are not important. What is important is that when the turning point really comes, can you abandon your preconceived obsessions and expectations for the target price and generously admit the objective facts?

Let's talk about RSI and moving averages again:

1) RSI divergence

It mainly refers to the phenomenon that the price hits a new high, but the RSI does not hit a new high or even turns downward, which is called "top divergence"; or it refers to the phenomenon that the price hits a new low, but the RSI does not hit a new low or even turns upward, which is called "bottom divergence".

The characteristic of this indicator is that it is "ahead" of the market. Often when the signal appears, the price has not yet reflected it. In many cases, the price continues to rise or continue to fall. However, the power of this indicator also lies in that the longer the divergence time and the more divergences there are, the stronger the reversal signal.

In terms of the large cycle, the weekly RSI divergence is more meaningful for reference, because the frequency of this signal is relatively small, basically 1-2 times, so there is less interference, while the daily RSI divergence occurs more frequently, and the corresponding is often a phased callback rather than a reversal. Take BTC as an example:

In practice, it is found that the number of top divergences in a cycle is often more than 1, and there have been repeated divergences in the past, while bottom divergences are often formed in one go. Personally, I guess this seems to be closely related to human greed and fear: in the top divergence, even if the market shows signs of overbuying, due to the general optimism of participants, they may ignore the risks and continue to push up prices. On the contrary, during the bottom formation period, due to the general pessimism in the market, investors tend to act conservatively or lie flat, which reduces market activity and gives smart money the opportunity to intervene and promote reversals, so it is easy to form in one go. However, as market funds become more mature and rational, repeated top divergences will become less and less, so this indicator is still the core reference for verifying the turning point of the big cycle.

2) Moving Average Arrangement

It mainly refers to the phenomenon that the short-term moving average (5-day moving average) is above the medium-term moving average (25-day and 50-day moving average), and the medium-term moving average is also above the long-term moving average (100-day and 200-day moving average), and the moving averages are generally upward, which is called "bullish arrangement"; or it refers to the phenomenon that the short-term moving average (5-day moving average) is below the medium-term moving average (25-day and 50-day moving average), and the medium-term moving average is also below the long-term moving average (100-day and 200-day moving average), and the moving averages are generally downward, which is called "bearish arrangement".

The characteristic of this indicator is that it "lags" behind the market. Often when the short arrangement turns into a long arrangement, or when the long arrangement turns into a short arrangement, the top or bottom has passed for a period of time. Therefore, we pay more attention to the turning point where the arrangement pattern may begin to change. This turning point is often described by "golden cross" or "death cross". "Golden cross" means that the short-term moving average crosses the medium- and long-term moving average upward, while "death cross" means that the short-term moving average crosses the medium- and long-term moving average downward.

Due to the "lag" of the moving average pattern, it is recommended that the weekly and daily lines assist each other in verification. We still take BTC as an example:

In practice, we will find that in fact, our market is long bull and short bear. In the true sense, the bear market with a complete short arrangement and a continuous decline is only a few months. In addition, although the "golden cross" and "death cross" will be confirmed earlier than the moving average pattern, they appear more frequently and there are more disturbances. However, this disturbance actually corresponds to the repetition of the market and the game between long and short forces, as well as the multiple selling points and buying points of the bull and bear cycles. It is impossible to accurately touch the top and bottom, so try a few more times.