How to Identify Turning Points in Cryptocurrency Prices?

How to Identify Turning Points in Cryptocurrency Prices?

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If you have been following crypto markets for a while, then you may have come across the term β€œthe turning point.” The turning point, also known as a pivot level, is simply a significant price level that may indicate the continuation or reversal of the current trend. This article explains how to identify turning points in cryptocurrency prices and find turning points using technical indicators.

Technical Analysis 101: The Best Technical Indicators for Crypto and Stocks | Alexandria

How to Identify Turning Points in Cryptocurrency Prices

There are several methods to identify a pivot (or turning) point:

1. Moving Averages Method

A simple and effective way of identifying a pivot point is by using moving averages, specifically the 50-day and 200-day moving averages.

The 50-day moving average (MA) will act as support and resistance levels for the price. The 200-day MA acts as a trend indicator, and it can be used to confirm the bullish or bearish trends.

The turning point will occur where the shorter moving average crosses the longer moving average. For example, if the price is above its 200-day MA and below its 50-day MA, it indicates a bullish trend. If the price drops below its 50-day MA, then it turns bearish.

A simple way to identify these points is by drawing two lines on a price chart, one representing the 50-day MA and another representing the 200-day MA. When the price comes close to touching or crossing the moving average, it will indicate that a price reversal may occur.

The moving average method can be applied to any market, not just cryptocurrencies. It is a simple and effective way to identify turning points in cryptocurrency prices.

2. Oscillators

Oscillators are used as overbought/oversold indicators and can help you identify overheated and oversold conditions in the market. When the price is in an overbought or oversold condition, it may indicate that a price reversal may occur.

Oscillators such as the Relative Strength Index (RSI), the Stochastic Oscillator, and the Commodity Channel Index (CCI) can help you identify turning points.

Using the RSI, if you see that the RSI has entered into overbought or oversold territory, it may indicate that a short-term price reversal is imminent.

The Stochastic Oscillator is the alternative to the RSI, and it mainly acts as support or resistance levels. The Stochastic Oscillator indicator helps identify bearish or bullish trends by measuring the price volatility (moving average). When the price is above its 20-day moving average, there are more sellers than buyers in the market. When the price is below its 20-day moving average, there are more buyers than sellers in the market.

Learn how to use the Commodity Channel Index (CCI) to identify overbought/oversold conditions in the market.

3. The β€œT” Lines Method

Another method is to identify turning points using β€œT” lines. In his book, Indicator Forecasting: The Science of Prediction, William Blau introduced this method known as the β€œT” lines method. It consists of two lines, one representing the β€œT” peak and the other representing the β€œT” trough.

When the price reaches a peak that contains a period of sideways price movement (a β€œT” peak), it indicates a reversal in momentum and that the bullish trend may reverse. If the price comes close to touching or crossing its trough (the β€œT” trough), then it may indicate that a short-term reversal may occur.

We can also use three lines to identify the β€œT” peak and β€œT” trough. When the price hovers around its peak, it indicates a lack of downward momentum in the market.

Conversely, when the price moves above its trough, it indicates a lack of upward momentum in the market and that there may be a reversal in the price trend.

The β€œT” line method can be used on any chart (with any period).

4. Fibonacci Retracement

A Fibonacci retracement is a popular tool used by technical analysts to identify potential support and resistance levels in the market. It can also be used to identify potential turning points.

The Fibonacci retracement tool is based on the Fibonacci sequence of numbers. This sequence involves two main numbers, the 233.8% and 38.2% extension of the previous retracement (237 and 61.8%, respectively). These extensions are calculated based on the price movement during previous periods.

The five most important levels in this tool are the 38.2%, 50%, 61.8%, 76.4%, and 88.6% levels, which can help predict potential support and resistance levels in the market, and potential turning points.

The Fibonacci retracement tool is usually used with other technical analysis tools such as the RSI or MACD to confirm a change in trend.

Learn how to use Fibonacci Retracement tool in your trading.

5. Elliott Wave Theory

Elliott Wave Theory is one of the most popular methods used to predict the price trend. This tool uses the principle of crowd psychology, which states that a group of people tends to be influenced by other group members’ emotions and beliefs. In simple terms, it means that human beings tend to buy or sell based on what they think other people are doing at any given time.

There are two main waves in this chart, the 1st, and 3rd waves. The 1st wave is the first period when the price made a larger move than its previous move. There will be three successive 3-wave price movements, and when it completes, it will indicate a significant change in trend. Each wave will have a smaller move, but this “smaller” move is greater than before (e.g., small moves are more significant and proportionate to that of the bigger moves). This change in trend will then lead to a 3rd wave, which is the last and biggest price movement before a consolidation period.

The downtrend can also be used to identify potential turning points. The downtrend occurs when there are consecutive bearish trends. It is best to use the hourly candlestick charts and other tools such as the CCI or MACD to identify the downtrend.

Final Words

In conclusion, there are many methods and tools that you can use to identify turning points in the cryptocurrency market, but the above methods are among the most popular ones. Finding turning points in any market is difficult and requires time and effort. You should always be aware of your risk management skills before trading any asset.

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Written by

Alexander Sterling

Alexander Sterling

Alexander Sterling is a renowned financial writer with over 10 years in the finance sector. With a strong economics background, he simplifies complex financial topics for a wide audience. Alexander contributes to top financial platforms and is working on his first book to promote financial independence.

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Judith

Judith

Judith Harvey is a seasoned finance editor with over two decades of experience in the financial journalism industry. Her analytical skills and keen insight into market trends quickly made her a sought-after expert in financial reporting.