Market bottom indicators – Learn how to improve your trading tops and bottoms

Are you interested in knowing how trading tops and bottoms works? Watch our latest video to discover the market bottom indicators.

Trading tops and bottoms – a “how to” guide

Hello and welcome to another video for Diary of a Trader. We’re going to go over how to identify the conditions that can be met for a market bottom or how to identify if there’s going to be a low met.

And, for the purposes of this video, we’ll be looking at the current chart of Ethereum. Now, it is 6:09 a.m. Central Time, and it is the 14th of June in 2018. And, as we’re looking at the chart here, this is the hourly, let’s look at the daily, and this is in cryptocurrencies. This is Etherium, and Etherium is the second most valuable and, arguably, the second most important cryptocurrency after Bitcoin. And we can see, though, that over the last eight days or so, that we have had some significant decrease in the price action. Now, the question comes to, well, if something is falling or rising at such a large rate, how do you determine whether that is going to continue, or whether it’s going to end. And, what we’re looking at here, this is market geometry. This is a Gann. Now, this tool is called, a Gann Box, but it can be used to construct a series, any number of Gann squares, like his Gann’s square of 90. That’s what this one represents.

And so, we look at the square of 144 rather. So, if we look at the chart here, we can see that price, whenever it falls through one of these angles, the ones that travel from the bottom to the top, we can see that we see a falling and then an acceleration in the movement of price. However, when we approach this angle here, we stop. We actually found a lot of support and now, we’re going to want to know why? Why was there a lot of support bought, and how to identify that support? Well, if we look at, for instance, the entire price activity, let me fix this here if we look at the level that we’re at, we like to look at some other conditions from the past, that would help us analyze why this may have been a stopping point. So, this line here, this thin blue line is the 78.6 Fibonacci retracement and that’s from the most recent swing low and swing high on the 1st of May down here, all the way up to… Sorry, the 1st of April, all the way to the 6th of May. Alright? And so, that’s where that Fibonacci was drawn. And so, the area that we stopped at yesterday, the price level is right on that 78.6 retracement, and that is shared by the Fib level, that it starts from the initial swing low of the breakout of Ethereum to the all-time high. So that is the same zone we’re finding in, and actually, as we’re looking at the volume profile here on the right,

another reason why we may have found a bottom is that this is a high volume node that we’re at. We’re trading in a significant amount of volume in the volume profile, right? This is actually the second largest volume node zone after what has been traded down here, which accounts for the very beginning of Ethereum’s major accumulation phase.

And so, that’s where we’re sitting right now, at that 4.80. But if we bring it down to the hourly… On a shorter time frame like the hourly, what do we see? We see large volume bars coming in, that are actually buying volumes. So, this is a clear sign that we have participants coming in to buy up at these lower prices and certainly to support price from moving lower. We have an inverse Head and Shoulders set up here. That’s a strong reversal pattern. We could draw that just like this, alright. Inverse Head and Shoulders pattern and we have, what you would probably call a bull flag right here, so the projected idea is that, as we approach this angle here, we will respond to it as a support zone and we should move higher, alright?

But, another indication that we have reached this bottom, is all these multiple time frames, so let’s look at the daily. On the daily, we have the following conditions: the composite index is in a low, alright? We’re actually in a very natural support zone, where we often see prices bounce, if we scroll all the way out. And so, we’re at a natural, low zone in Ethereum and the fact that we are below both of the averages here, indicates that we are in a buying condition. So, the minute we start to slope up, means that we are in a buying condition if we’re below these two moving averages.

Also, look at the Stochastic RSI. What value is this set? We are all the way down in oversold territory, and if we look here we see that the fast-moving stochastic is sloping up, which indicates that we will be moving higher. So, we have all of that going for us. Then, if we look at the weekly, what do we have? Well, we finally are below the moving averages in the weekly and we’re approaching a zone that may or may not be a support zone in the composite index. But, if we still do start to move higher, the fact that we’re below these moving averages is supporter of buying. If we look at the stochastic RSI, as well we are in neutral territory, still pointing down, but we are still indicating that we have conditions for moving higher. When you are looking at weekly charts, and we’ve been in an overall long term Bull trend, then things that are around the 50 value area in the stochastic RSI or in any fast moving oscillator, those can turn in to be support zones for buying, so we are still within that value area.

And then, if we look at the monthly, finally, we can see that we have very supportive buying conditions on the monthly. And this actually will look a little silly because if you think about it, Ethereum is new, compared to, if we look at a Forex pair, or a regular equity market, or the S&P 500, ETF. We don’t have a lot of history to go by on the monthly, but the values are still here, so when they finally meet the conditions for being painted out on oscillator, we can see that we have a low in the composite index being met, followed by a higher low but we have a lower low on price, so this is, in fact, natural divergence on the monthly chart, followed by the conditions that we have, extended oversold conditions in the monthly chart. Now, any monthly chart that has extended oversold or overbought conditions, it does not stay there very long. It does not stay in here, it responds very violently and very reactively out, so we should expect to see a large, responsive price move higher to get out of this zone, based on the monthly.

And so, if we just look at all of these conditions, where we have a bit of a downtrend going forward, since the beginning of the year, we look at the current price action, where it was halted on this angle, in addition to this shared, we have two equal Fibonacci value areas on a shorter and a long-term swing range and in addition to the extended conditions in these oscillators on the daily, weekly and monthly charts, we have a very high probability that this is a market bottom. Oh, and in addition to the high volume node that we see here, at the current value area, alright? And so, this will be fun to look at, as you see this video. If we were to look at it again in about six months, closer to December or January of 2019, it will be interesting to see if this scenario where we have these conditions being met for a bottom in price, where we could see prices move higher from this area and this could certainly be a market bottom.

Thank you for watching this video and I look forward to talking with you in our next video. Bye-bye.