Written by: theGuy

How to Catch the Crypto Bottom

So, you wanna catch the crypto bottom and get rich, huh? We hear ya...unfortunately, there's no such thing as "catching" the bottom in any market, but there is such as thing as buying assets at statistically favorable prices. How do professional investors do this? The answer is simple. They use statistical analysis, also known as technical analysis (TA). Now, I know what you're thinking: "TA is just some BS fake traders use to sell newbies get-rich-quick courses on YouTube."

Well, not really, sir. TA is not voodoo magic, or a "system" that can guarantee you constant profits, or 100% winning rates. It's actually a very powerful investing tool, which provides a visual representation of fundamental factors based on statistics. 

TA is a real thing, a real thing professionals really do use.

For example, here's some TA live on Bloomberg TV. Bloomberg is a 24-hour global business and financial news television network owned by Bloomberg L.P. It broadcasts live programming from its headquarters in New York City and London, as well as from regional studios in Washington, D.C., Chicago, San Francisco, Tokyo, Hong Kong, and Frankfurt. Bloomberg Television provides news coverage and analysis of global financial markets, as well as in-depth interviews with business and political leaders. 

Here's TA from the Boomberg Terminal. Bloomberg Terminal is a computer software system provided by the financial data vendor Bloomberg L.P. that enables professionals in finance and other industries to access the Bloomberg Professional service through which users can monitor and analyze real-time financial market data and place trades on the electronic trading platform. The system also provides news, price quotes, and messaging across its proprietary secure network. The cost of a Bloomberg Terminal subscription varies depending on the type of subscription and the number of users. A single-user subscription typically costs around $24,000 per year.

So, are professional investors paying $24,000 a year for squiggly lines on a screen just for fun, or is there more to it? Remember, we told you TA is based on statistics, and professionals use it to tell them about probabilities. A probability is not a certainty, but it is a chance. A chance that can be assigned a numerical value and used to make investment decisions. So, how do the wizard chartists know what the probabilities are? Well, they’re not magicians. They are simply using math!

There is No Free Lunch in Markets

If you’re looking to get rich quick or for some “system” that’s gonna give you edge in the market, or you want us to flash lambo pics and tell you that, you, too, can be driving one soon, and that these “things” will make you feel happy or fulfilled, or bequeath you a sense of purpose, then Brainyield is not for you! Allow me to give you a piece of advice, my degens: money doesn’t buy happiness. Learning to invest in crypto is like anything else in life, it has a learning curve.

The learning process full little Ray Dalio rocks that trip us up along the way. We call them Rayrocks.

Along the paths of our individual journeys to self-actualization, we’ll stumble on Rayrocks over and over again. That’s life.

Sometimes, tripping on a Rayrock can really sting! These are obstacles that make us doubt and hate ourselves. They make us doubt our decisions, and hate the outcomes they produce. They make us forget all about probabilities! Rayrocks create a vicious cycle of self-loathing that keeps us from reaching our true potential. If you wanna know how Rayrocks f*cked us over in 2022, go read “How I Made $3.3M in Crypto.”

Alright, now that we got the disclaimer out of the way, let’s get back to the reason you came here. We want to show you a TA hack many professional investors use to time long-term entries and exits in a variety of markets. You can use this hack to "catch" the crypto bottom. Let's get into it!

So, what's the hack?

Our technical analysis hack for catching crypto  bottoms and tops involves 2 moving averages.

 1. The 200 week simple moving average (SMA), which is used for entries.
 2. The 21 week exponential moving average (EMA), which is used for exits.

The rationale behind the use of long-term averages such as these in technical analysis is that, in statistics, data points tend to return to their mean. In the case of markets, it simply means prices are likely to revisit long-term averages over time. What goes up, must come down, and vice versa.

Regression to the mean is a phenomenon present throughout nature. Professional investors are well-aware of this, so they use long-term price averages to plan macro (long-term) accumulation (buying) and distribution (selling) strategies.

First, let’s look at the efficacy of the 200W SMA as a long-term accumulation (buying) zone. We will plot the 200W SMA as an green line on the chart, and analyze the price action around it for several major markets.

 1. S&P500

Below is a weekly a chart of the S&P 500 displaying 33 years of price data. You will notice every time the price of the index fell to or below its 200W SMA it presented macro (long-term) investors with an above-average accumulation (buying) opportunity. Sometimes the opportunity is short-lived, as in the 1990s. Sometimes, it lasts a while, as in the 2000s. Obviously, there are fundamental reasons behind this, likely tied to Federal Reserve policy. The moving average merely allows investors to visualize the fundamental phenomena, and assign statistical value to it.

 2. NASDAQ

Below is a weekly chart of the NASDAQ displaying 33 years of price data. You will notice the 200W SMA marked macro bottoms several times, and extended periods below the average were actually incredible buying opportunities for this asset.

 3. Gold

Below is a weekly chart of gold displaying 33 years of price data. Notice anything interesting? When was the best time to accumulate gold during this period? That's right, when price was below its 200W SMA!

 4. Real Estate Index

Below is a chart of the Dow Jones Real Estate Index displaying 18 years of price data (the most we could find). Again, you will notice when price is below the 200W SMA the asset is giving long-term investors an ideal entry point. 

 5. Bitcoin

Finally, we have a weekly chart of Bitcoin displaying 12 years of price data (as much as is available). Do you notice anything? So far, the 200W SMA has been 100% accurate in denoting macro price bottoms. Unbelievable, right?

As you can see, the 200W SMA holds weight across a variety of asset classes. Generally-speaking, buying at the 200W SMA is an above-average long-term investing strategy. In other words, when the price of an asset is at or below it’s 200W SMA, it is usually undervalued. It marks the start of a bull cycle phase, or (in other words) the end of a bear cycle phase.

Next, let’s look at the efficacy of the 21W EMA as a long-term distribution (selling) zone. We will plot the 21W EMA as a red line on the chart, and analyze the price action around it for several major markets. Although the 21W EMA is not as good at marking tops as the 200W SMA is at marking bottoms (mainly because its a shorter-term average, less data = less accuracy), its still a very useful tool, especially when combined with other forms of technical and fundamental analysis.

 1. S&P500

Below is a weekly chart of the S&P 500 displaying 15 years of price data. You will notice three general patterns: (1) when price is above the 21W EMA, the asset is in an uptrend; (2) when price is below the 21W EMA, the asset is in a downtrend, or a sideways trend; and (3) when price tests the 21W EMA either to the upside or downside, it will result in either (a) trend reversal or (b) V-shaped trend continuation. The arrows below mark points at which price confirmed the uptrend reversal by rejecting the upside retest of the 21W EMA.

 2. NASDAQ

Below is a weekly chart of the NASDAQ displaying 15 years of price data. You will notice the same general patterns described above.

 3. Gold

Below is a weekly chart of gold displaying 15 years of price data.

 4. Real Estate Index

Below is a weekly chart of the Dow Jones Real Estate Index displaying 12 years of price data.

 5. Bitcoin

Below is a weekly chart of Bitcoin displaying six years of price data.

As you can see, the 21W EMA holds weight across a variety of asset classes. In general, selling below the 21W EMA is an above-average long-term investing strategy. In other words, when the price of an asset breaks below it’s 21W EMA after having held a trend above it for some time, it is usually  overvalued. It’s at the end of a bull cycle phase, or (in other words) at the start of a bear cycle phase.

Wrapping It Up

Well, there you have it my degens! This simple TA hack for identifying long-term buying/selling zones is not all you have to learn to become a successful crypto investor, but it is something you must consider every time you’re thinking about making a long-term investment decision. Ask yourself, “where is current price relative to the 200W SMA? The 21W EMA? Should I be buying or selling?” These questions will spare you the pain of being on the wrong side of a long-term trend, and help you identify crypto bottoms and tops. I hope you enjoyed it! Come visit us again soon for more free investing education pieces like this one. Oh yeah, I almost forgot...there is one one last question you should be asking yourself: “why haven’t I signed up for Brainyield’s on-chain analytics course yet?”