Where Will We Bottom? (excerpt edition)
By: Lex Van Der Werff
Tags: Cryptocurrency, Technical Analysis, Bitcoin, Trading

I’ve been playing around with indicators and spreadsheets lately, in an attempt to predict the bottom and new highs. That’s what I want to focus on with upcoming articles. But first things first, the bear market. I’ll take a look at the 2014/2015 bear market and the similarities compared to 2018. I came across a few other graphs which I would like to take a look at in a next article.

A little disclaimer: I combine things from other traders with my own findings. Credit where credit is due 😘

Where did we bottom in 2014 / 2015?

History repeats itself. When it comes to trading certain things have a high probability of happening when certain patterns emerge. Taking a look at 2014 you can clearly see two parts of the bear market. The first lasts until mid September. Hopes were high for a price recovery, but it broke down when the price broke below $440 for a fourth time. From this moment on the second part of the bear market started and found an ultimate bottom of $220. With some spikes as low as $160.

Was it possible to predict this bottom in the first part of the bear?

Fibonacci Extension Levels

Let’s grab Fibonacci extensions to start with. Basically, to use this tool we first need a move with a good Fibonacci retracement. A few of those happened in 2014.

2014 Fib #01

The first move started at around $1163 and fell to $382. The retracement went all the way back to $995, the 78.6% Fibonacci retracement level. Grabbing the extension tool and connecting those points creates the grey (100%), yellow (127.2%), red (141.1%) and blue (161.8%) lines. Those are likely support levels. And those support levels are even stronger when different moves create the same levels. In the image above it shows there’s good support around $214. I didn’t force it, I didn’t cheat. It just happens to be spot-on! The other levels this extension creates are a bit unrealistic.

I’ll show you a few other examples of good extensions during the first part of the bear.

2014 Fib #02

With this one, the price was only $16 short from the 78.6% retracement ($710 high on Bitstamp, $719 high on Bitfinex). I’m using $815 as a starting point. You could lower it a bit, since the breakdown level would’ve been a bit lower, giving a perfect match for 78.6%. It doesn’t make much of a difference for the extension levels though. The grey line now sits at $320, giving great support around October and November 2014 after the $440 breakdown. The next support is the 127,2% which was sitting at $209.

Great! We now have two different extensions showing support between $209 and $214.

2014 Fib #03

A third one. The starting point might seem weird, but $677 was the daily close on the third of March. This retracement came back to the 61.8% level. Extensions gave another 100% level in the $209 area. You could argue that the retracement should be 100%, since the price went all the way back to $677. Let’s take a look at it below.

2014 Fib #03

A little less useful. But it still would’ve given you a good buy price at 141,4% extension ($199, again very close to the lows and prior extensions).

The Fibonacci extension tool predicted a few very good support areas for the second phase of the bear market.

Bollinger Bands, Historic Volatility and Parabolic Stop & Reverse

There are some other indicators that showed the bottom was in. Bollinger Bands, Parabolic Stop & Reverse (both mentioned by Tyler Jenks) and Historic Volatility (Willy Woo) are a few I’d like to take a look at. These indicators gave a clear signal back in 2014/2015 for a bottom. I leave the BB and S&R at default, but set the HV to 33. As mentioned by Willy Woo in the interview above, the moment the HV flattens out is where your bottom is.

2014 BB HV S&R

For a bottom you would like the HV to be as flat as possible. This signals a long term stable price. It also tightens the Bollinger Bands. At the lows, the upper band was at $280 and the lower at $210. A difference of 25%. The HV was quite flat and between 70 and 45.

The S&R points are also a good indication of a long term trend switch. Although later in the article I will point out why in 2018 this isn’t a 100% perfect indicator. As always, never trade a single indicator.

RSI and volume

2014 RSI and volume

What can I say? Right now we’re far from oversold on the weekly chart. I do have noticed something in volume. Near the end of bear phase one, the volume made a low before rising again. The volume topped afterwards near the price lows. The low volume and RSI in the 40’s marks the spot the bear market changed from phase one to two. More on this when I get to the 2018 part of this article.

Where will we bottom in 2018 / 2019?

We now know how to find support levels with Fibonacci extensions and where to look at near the bottom. Let’s take a look at the present day and use the same analysis.

I think we’re still in the first phase of the bear market, but nearing it’s end to go into the second phase.

Fibonacci Extension Levels (strict)

2018 has shown some great retracements already, and we’re working on another one. I’ve divided this extension section into two parts. One that’s very strict on the Fibonacci retracements, the other less strict. This way it creates a few support ranges.

2018 Fib #1 (strict)

The one above starts at $11700, goes all the way down to $6425 and retraces back to the 61.8% level. You could argue if it should be $9685 or the high of $9990. Extension levels near $4410 (100%) and around $2975 (127,2%).

2018 Fib #2 (strict)

This one is just spot-on! Again, a retracement to 61,8% at $8372. But for good measures I’ll take a look at a retracement to the high of $8500 as well. Support: $4137 (100%), $2985 (127,2%).

Taking the extension levels from both, gives the following support ranges:

2018 Fib support range (strict)

Magical! Just perfect when you look back at 2017. The 127.2% (yellow) will be a perfect buy. More on this later.

Fibonacci Extension Levels (less strict)

The first one with a retracement to $9990:

2018 Fib #1 (less strict)

The second one with a retracement to $8500:

2018 Fib #2 (less strict)

It gives the following support ranges:

2018 Fib support range (less strict)

You see, here’s the difference between the ‘pure’ Fibonacci one and this one. The support ranges are a little bit higher.

Fibonacci Extension Levels: Verdict

I’ll quickly line up the numbers for you.

Support ranges for the pure Fibonacci one:

The 100% extension level is in the range of $4410 to $4137

The 127,2% extension level is in the range of $2985 to $2975

The 141,4% extension level is in the range of $2383 to $2226

The 161,8% extension level is in the range of $1520 to $1150

Support ranges for the second one:

The 100% extension level is in the range of $4715 to $4271

The 127,2% extension level is in the range of $3280 to $3119

The 141,4% extension level is in the range of $2531 to $2517

The 161,8% extension level is in the range of $1653 to $1455

I think the $4400 range is a good one to show support for the near future. When $6000 finally breaks, you should look for a long in that area. I do think this will be a temporarily low and that $3000 will be the ultimate bottom. Maybe an intraday spike down to $2500, near the 141.4% level.

I think it’s safest to go for the second set of ranges. This way you’re always sure of getting a long in before a bottom hits. Not getting the perfect bottom for your long (or short exit) isn’t bad. Being $100 or $200 off isn’t that much, especially when a move retraces back to 61,8% levels shortly after. You’ll still make a very good profit. By putting in a buy order too low, you risk missing the buy if it bottoms $100 higher.

Bollinger Bands, Historic Volatility and Parabolic Stop & Reverse

To determine if the bottom is in by now, we’ll grab the BB, HV and S&R points.

2014 BB HV S&R

The HV is nowhere near the lows it showed back in 2015 and is still descending. Wait for it to flatten.

The BB are very far apart from each other. Remember that the difference between the BB in 2015 was 25% at it’s low. Right now the upper band is at $9654 and the lower band at $5265. That’s a 45% difference. Back in August/September of 2014 we saw similar percentages (42%) before breaking the support of $440 and going into phase two of the bear market. This tells me we’re clearly at the verge of breaking $6000 and going into phase two.

Only the S&R shows something different compared to 2014. We already broke it for four weeks! This isn’t very strange, since the S&R is a parabolic indicator. Every time you make a new high/low during a move, the S&R points accelerate. According to the way S&R is calculated, we made two lows before October 2014. In 2018 we already made four lows before August, accelerating the S&R. That’s the reason it already broke once.

RSI and volume

2014 RSI and volume

Not really much I can say. The RSI is far from oversold. It looks like we’re really for bear phase two. Around the same time in 2014, the RSI was in the 40’s while making a volume low. You can clearly tell the resemblance.