ETH is forming a massive 18-month bottom, with the best buy points at the line of least resistance, which can be discerned by volatility contraction. Strong hands will replace weak hands, and if there are not many weak hands causing excessive selling pressure, a breakout will result.
Written by: @DeFi_Cheetah
Compiled by: Yvonne, Mars Finance
Here is an analysis of the cryptocurrency market 🧵:
First, how to confirm a cryptocurrency bull run?
Short answer: A huge bottom formed on the chart.
$ETH is forming a massive 18 month bottom with the right side tightening. That's what I'm looking for: Once it breaks out, it's going to be explosive. Why?
1. To time the market, we need to understand price trends. Why are asset prices soaring? Because purchasing power overcomes selling pressure.
This is the only reason and no other. The second is how to find the best buying point to get a good risk-reward ratio.
2. Ideally, you should try to buy at the line of least resistance, where there is least resistance to a price rebound.
To do this, you need to find the point on the chart where the selling pressure is likely to be the lowest. Sounds logical, but abstract? I'll show you.
3. Market participants are divided into two categories: strong players and weak players. The former refers to those who have great confidence in an asset due to information asymmetry through in-depth research or inside information. The latter are retail speculators who just want to seize some short-term speculation opportunities.
4. To determine the line of least resistance, you need to know where there are the fewest weak hands to avoid excessive selling pressure during the price rise, thus dragging down the rising power. Let me give you the answer first: it is where volatility shrinks.
5. This is called a volatility contraction pattern by @markminervini, the absolute master of stock trading. Basically, weak investors love volatility and hate the opposite. Therefore, in a "boring" market, retail traders will fade out and pay less attention to the market after a long period of calm.
6. This is why the classic cup-and-handle pattern is recognized in technical analysis. At the "handle" position, those who bought at the bottom will take profits, and those who bought from the previous high will sell, causing the rise to stop and the price to fall slightly.
7. But this is actually a good sign: when the price moves slightly downward and the volatility is small, the market for the asset is hardly popular with the weak. As this continues, more and more people will sell to the market. To whom? Strong hand.
8. How to identify a strong player gradually replacing a weak player? When weak hands sell, if there is no equivalent purchasing power to support the price, the price will drop sharply. At the "handle", due to tighter prices, this is not the case!
9. Instead, strong players are accumulating assets. They will not take the initiative to buy, but absorb chips bit by bit. So, to the left of the "handle," volume may still be huge, but price is depressed, indicating that strong hands are taking over.
10. As volatility contracts further, volume will tend to dry up, showing fewer weak hands in the asset and strong hands not selling. When there are enough strong hands, this will lead to a breakout if there are not many weak hands causing excessive selling pressure.
11. ETH USD is now trending very much like it did in 2020, with prices tightening and volatility shrinking on the right. The larger the base formed, the more consistent the subsequent price increases will be.
12. Take into account the symmetry required: the larger the base, the longer the handle will be needed for a good setup. It may take some time for the market to rise further. Before the breakout in 2020, the past few weeks had been pretty quiet. Then the "bomb move" is what I want to see.
13. So if the next time the markets become calm again, stay tuned. This is likely to be the last moment before a huge breakthrough, which will drive everyone crazy and send the market into excitement!
