When Will Bitcoin Bottom Out? 4 Ways Traders Spot the Early Signs

This time last year, everyone was rushing to predict how high bitcoin would go. We had outrageous price predictions of $200,000 per bitcoin and even $1 million.

Now, the current trend is predicting the bitcoin bottom. Considering most price prediction were wildly wrong, it’s safe to assume most people predicting the “bottom” might also be off the mark.

So how do you really tell when the price of an asset has bottomed?

Here are four ways traders use to identify when a market is bottoming out.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

1. Double bottom chart pattern

The classic sign of a market reversal is when a “double bottom” is formed on a market’s chart. It’s also called a “W pattern” because it resembles the shape of a W. Here’s what it looks like in chart form:

Double bottom chart
Source: Investopedia

It typically means that sellers have forced the price down to the lowest point. They tried to break it once and failed. They tried again, but the buyers proved stronger for a second time.

It signals the point where buyers are stronger than sellers and a reversal can begin.

Even if you see a double bottom pattern forming, it’s usually best to wait until we complete the full “W” shape and break out above the W, as indicated on the chart above. That would represent a true comeback.

Bitcoin is in the process of forming a short-term double bottom pattern, but it is not yet complete.

Bitcoin double bottom forming?
Source: CoinMarketCap

Of course, this chart pattern is no guarantee of a reversal. We need to look deeper into the activity of buyers and sellers. And that means taking a closer look at volume.

2. Lower volume on downward moves

In the simplest possible terms, a reversal takes place when more people are buying bitcoin than selling it.

So we need to look for signs that sellers are getting weaker and buyers are getting stronger. That means looking at volume.

“Volume” in this case refers to how much bitcoin is bought and sold in a given 24 hour period.

At the moment, more people are selling than buying. So the volume on downward moves is generally much bigger. 

More people are selling = bigger volume on downward moves.

What you’re looking for is that trend to change. We’re looking for lower volumes on each downward move.

That would indicate that the number of people selling is getting smaller and the downtrend is coming to an end.

Unfortunately, we’re not yet seeing that with bitcoin. As Max Boonen, founder of B2C2 told the Financial Times during the latest selloff,  “[Trading] volumes have been quite high in this move lower.”

To gauge the volume of buyers and sellers, you’ll need to look at more technical charts than the basic CoinMarketCap price charts. 

3. Higher volume on upwards moves

Next, we need to see more buyers coming into the market. 

In other words, we should also begin to see volume increase on the upward moves. That would indicate that more sellers are rushing in to buy bitcoin.

This is the simplest depiction of a market reversal: more people are starting to buy than sell.

4. Negative news headlines

This one is less of a technical indicator, but it’s a psychological sign that a bottom is coming.

The press tends to follow the crowd and track the broad sentiment. So if news headlines (especially in the bigger media outlets outside the financial and cryptocurrency world) are turning negative, it means most people are now fearful.

Anyone that does want to get their money out will probably do so after the mainstream negative headlines, leaving only the people willing to hold on.

It’s safe to say we’ve reached that moment with bitcoin. Here are just a handful of major headlines over the last week:

Bloomberg: Bitcoin’s Deepening Crash Now Approaches Its Worst Bear Markets

The Guardian: Only a Fool Would Have Bought Into Bitcoin Last Year. So Guess What I Did?

New York Post: The Bitcoin Pyramid Scheme Continues To Collapse

CNBC: Long, Dark Winter Ahead For Crypto

So, Has Bitcoin Bottomed?

According to these classic criteria, not yet. Although some of the signs are beginning to appear, it’s too early to call a true bottom. Volume is still heavy on the downward falls and the classic “double bottom” has not fully emerged.

On top of all that, technical analysis from charts isn’t 100% effective, and even less so in the new and volatile crypto markets.

In other words, it’s very difficult to predict a bottom and you should take any claims with a great caution.

Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.

Ben Brown

Editor, Block Explorer News. Reach me at benjamin-brown.uk

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