Parabolic Bitcoin Indicator Could Suggest Local Bottom Is In


When Bitcoin rallies, it has historically gone parabolic and rocketed to astronomical prices before peaking each cycle. There have been few rallies lately, pushing the price per coin down to around $33,000 at its local low.

However, the plumb bob failed to tag a “parabolic” indicator and it could mean the local bottom is in. Here’s more about the parabolic SAR, the potential signal, and other supporting evidence that the bottom may already be there.

Parabolic uptrend intact, says indicator with 95% confidence

Bitcoin price has repeatedly gone parabolic to round out any major cycle spikes before entering a bear market. While the recent sentiment and price action in crypto has been deceptively bearish, there are plenty of signs that Bitcoin is still in a bull market.

One of those signs suggests not only that the uptrend is still intact, but that the local bottom of the recent downtrend could very well be engaged. That signal is the Parabolic SAR on monthly time frames. The higher the time frame, the more dominant the signal, and there are less significant intervals in the month.

Related literature | Bitcoin Starts Bouncing From 7-Year Bull Trendline

During the month of January, Bitcoin price action halted precariously at the Parabolic SAR indicator – there was nothing left but a pit standing opposite it. When February opened, Bitcoin continued to climb, forming a green candle and leaving three months of unexpected downtrend.

As each month progresses, the Parabolic SAR moves up or down along with price action. With Bitcoin price trading above the Parabolic SAR, it moved up in February, meaning the indicator will be touched as another test of January’s lows takes place. It could also mean that January’s lows will never be revised. Or at least not for a while.

The Downtrend Stopped Right at the Parabolic SAR | Source: BTCUSD on TradingView.com

Backing up the idea of ​​what the Bitcoin bottom is in

The Parabolic SAR stands for “stop and reverse” and the indicator is designed to do just that: tell a trader when the trend has stopped and vice versa. It is so effective in this regard that traders often place their stop loss directly above or below the SAR depending on the direction of the price.

If the SAR is touched, it tells a trader that there is a high probability that the trend is over. If the SAR is not touched, traders will continuously move their trailing stop loss just above or below it. The fact that Bitcoin price stopped before the SAR on monthly instalments could indicate that a major player is using the tool for a trailing stop lossand might be interested in protecting that position.

Related literature | Crypto Correlation: Comparing Bitcoin and the Flat S&P 500 Correction

Or of course the tool works exactly as J. Welles Wilder designed it to† Wilder also created other effective and widely used technical analysis tools, such as the Relative Strength Index, Average Directional Index, and Average True Range.

The middle Bollinger Band and Ichimoku baseline support the SAR theory | Source: BTCUSD on TradingView.com

Although the parabolic SAR is often considered a lagging indicator, after 17 years of research, it was found to have a 95% confidence level. But if that weren’t enough to potentially instill more confidence after such a brutal sell-off, the monthly Parabolic SAR also seems to coincide with the monthly Bollinger Bands baseline (left, middle band) and the Ichimoku baseline (right, Red line ).

Is this enough to avert further bear support violations and lower prices? Time will tell. But if no new lows are entered and the uptrend continues from here, will that increase your confidence in the Parabolic SAR?

To follow @TonySpilotroBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education† Please Note: Content is educational and should not be considered investment advice.

Featured image from iStockPhoto, charts from TradingView.com



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