When bitcoin changes trend, it’s usually pretty clear. But will it be the same this time?

Every crypto trader wants to know whether we’re finally near the bottom after a 13-month-long bear market. What would that look like in practice and how will we know when it happens?

Bitcoin loves big, overblown movements, and if the past is anything to go by we can expect a high volume spike downwards and back up at the end of the cycle: Capitulation. It happened early in 2015 and we’re waiting for it now. But is that always the case for markets? Is there a chance it will be different this time?

Sushi Roll reversal

Investopedia discusses reversal patterns described by Mark Fisher, author of The Logical Trader.

‘One technique that Fisher calls the “sushi roll” has nothing to do with food, except that it was conceived over lunch where a number of traders were discussing market setups. He defines it as a period of 10 bars where the first five (inside bars) are confined within a narrow range of highs and lows and the second five (outside bars) engulf the first five with both a higher high and lower low. The pattern is similar to a bearish or bullish engulfing pattern except that instead of a pattern of two single bars, it is composed of multiple bars.’

This pattern has appeared on the daily chart for bitcoin, but we’re not convinced (and it doesn’t take in the lowest price to date this year, $3,122 on Bitstamp).

High volume?

Price is only one factor. Volume is another. Volume is an indication of how confident a market movement is. That’s why those huge bitcoin volumes are so welcome: they show that a lot of traders are putting their money where their mouth is.

Take a look at the S&P500. Capitulation in March 2009 did see volumes peak. The previous bottom, though, in 2002, did not see unremarkable volumes for the lowest point. A few weeks earlier price had slumped with higher volume, though not to the ultimate low. Roughly the same picture is true for the Dow Jones.

Or look at the FTSE100 for its reversal in 2009. Again, volumes are high, but do not peak in March, when the market finally turns around. Higher volumes were evident late in 2008, with the dramatic fall of 1,600 points over 4 months. We actually saw something similar with bitcoin at the end of last year.

So while bitcoin previously has put in high-volume capitulations, and we still think we need to see a high-volume crunch before things change, that’s not a done deal – peak volumes are often but not always a feature of trend reversals.

A few other hints as to whether a movement is a true reversal, or merely a retracement (i.e. a temporary pause before the trend resumes):

Retracements often (but not always) respect fibonacci lines.

In a reversal, we’d look for a higher high and a higher low. We haven’t yet seen that in bitcoin – so even if the bottom is in, that confirmation signal is yet to come.

Reversals break trend lines, showing that the macro picture has changed. For bitcoin, the line of the downtrend slopes right from around $12,000 back in February to roughly $3,800 now. If it isn’t broken, it will hit zero sometime in Q3…

Lastly, we’d expect to see exhaustion in terms of sentiment. The bears are all burned out and have nothing left to sell. This is why the announcement that the ETF has been pulled was so interesting. It had no impact on the market. And that might just be an early indication that we’re almost there.

Almost.

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