One of the most difficult tasks for cryptocurrency investors is determining the crypto market's bottom. The market bottom is the lowest point in a security's price over a given time frame before a new uptrend begins. Timing market bottoms is a difficult task, but by buying low and selling high, you can make huge profits. Since the COVID bear market bottom, stock investors have made enormous profits. Oil traders who bought the bottom after the historic oil price crash of 2020 benefited from the hunt for a bottom as well. The 2018 crypto winter rewarded HODLers and crypto enthusiasts who bought at the bottom. That is the essence of "buying the dips" investment strategies.
The main takeaway is that no one can predict market bottoms with 100% accuracy. However, there are some technical analysis methods, chart patterns, and other indicators that can be used to determine whether the cryptocurrency market has bottomed.
Higher VIX levels, on average, indicate a higher level of fear. As a result, market sentiment is bearish. When the VIX index reaches a new high, it indicates that the fear is subsiding. This is also an early indication that institutional investors are rethinking their market position.
Market Cycles and Sectors
Another way to spot market bottoms is to monitor the various cryptocurrency market sectors. Similarly to how the stock market is divided into sectors, cryptocurrencies can be divided into various sectors. A cryptocurrency market sector is a group of cryptocurrencies that share many characteristics and provide the same type of utility.
Intraday price reversal
Intraday reversals are another sign that your cryptocurrency is nearing its bottom. These happen fairly quickly and are easily identified. Intraday bullish reversals on the price chart occur after the market dips and, unexpectedly, buyers take control of the market to the point where they are able to turn a big losing day into a positive day — even if it is a small gain.
Look for confirmation of volume
Over a long period of time, such as weekly or monthly candles, look for very high sell volume, followed by low volume and what appears to be a bottoming pattern, followed by very high buying volume on a recovery. One reliable way to identify an accumulation zone at the bottom is to look for it as the asset begins to rise again. You won't find the exact bottom here, but you'll be able to get close. If you believe we are starting the next cycle from the bottom, you can always use stops / trailing stops / short positions as a hedge as a type of insurance in case you are wrong.
Before a bull run, expect a full retracement to at least where we started
If we are back at a support level where we started before we saw parabolic price action, and we are hitting support (either the top or bottom of a previous range), it may be a good time to average into a long term position or try to play a bounce.
It is impossible to predict exact bottoms, but you can always average, use stops, and hedge to help ensure a solid position.