Part two of this article we go over which metrics we use to buy tokens, which tokens we are looking at currently, and some other information.
This article is the extension of [Part 1], please check it out to better understand part 2. The first metric below is the Bollinger Band, these bands show volatility and a general area of overextension vs. discount price. When trading, timeframes become very important, we can see the price of BTC dropped below the bottom band during this crash on the daily chart. Generally, the shorter the time frame you select the more gruesome this crash will look. But if you like to swing trade on monthly time frames like myself, we will look at the weekly chart also. The weekly chart reveals that we dipped slightly below the moving average. I use Bollinger bands to help with trading a trend, when the price action is near the bottom band or below this will help me justify buy ins. BBs can also be used to trade when the bands squeeze together, this indicates less volatility of an asset. You can potentially climb along the top band during these periods[1] .
The second and rather simple indicator I like to use is the Relative Strength Index (RSI). The RSI indicates the momentum of an asset, is the asset overheated, cooling off, or in the middle. The RSI historically can assist with buy ins around the 35 and below range and sells above the 75 range. The RSI does change its behavior during bull and bear markets, bull markets like we are seeing now the range varies from 40-90 for most of the cycle[2]. The picture below is a great example of historical buying opportunities where the RSI fell close to or below 30. I use the RSI for buy ins with a mixture of the BBs above. I also plan on using the RSI to spot blow off market tops to sell into stable coins before a potential future bear market.
Another metric we can use for the overall market is the famous Stock-to-Flow model. This model was discussed in September as an aide in deciding if the market is at a relative discount. Generally, prices below the line are long term discounts vs price action of BTC. Prices far above the line indicate the market is overheated. This model has been fairly accurate on the monthly evaluation. This model along with the Pi-cycle top are helpful in realizing a market top also. Both of these models can be found on [this site].
Final Thoughts
Looking at this weekly chart again I drew a very simple support line. We can see that BTC has bounced off of this line pretty reliably over several months. This line is continuously moving upward also. This could be our next higher low, higher lows are important, they are the foundation of the next higher high of a trend. If this line stays true the next higher low will likely be above 60k. This is bullish indeed, but on a longer-term time frame. Washouts like this extend the cycle and because of these crashes we just might see this macro bull market extend way past next June! Please remember none of this is financial advice, do your own research and stay safe out there!
