Lesson 10

Yibo Crypto Host shares valuable knowledge—save it for later review

How to identify the “top” and “bottom” in cryptocurrency (like Bitcoin) trading, meaning when it might be about to peak and start to decline, or bottom out and begin to rise. The specific methods and practical skills are explained without complex terminology. Simply put, it involves these key points:

Start with basic logic: The top is signaled after a long price increase, when indicators show signs of reversal or stagnation (for example, everyone is overly optimistic); the bottom is indicated after a prolonged decline, when signs of stabilization and rebound appear (for example, everyone is overly pessimistic). When judging, you shouldn’t rely on a single signal. It’s more reliable to combine volume, different timeframes (like 1 hour, 1 day, 1 week) for analysis.

Identify tops and bottoms through candlestick patterns: Like looking for “price shape” patterns— for example, common top patterns include “Head and Shoulders” (resembling a head with two shoulders, with the head being the highest point), “Double Top” (price reaches similar highs twice before falling); common bottom patterns include “Inverse Head and Shoulders” and “Double Bottom” (price dips to similar lows twice before rising). There are also special candlestick signals, such as a “Hammer” at the end of a decline indicating a potential bottom, or an “Inverted Hanging Man” at the end of an uptrend indicating a possible top.

Use Bollinger Bands for auxiliary judgment: Bollinger Bands act like a “price activity channel,” with the middle line representing the average price, and the upper and lower bands indicating volatility boundaries. When the channel narrows, it suggests a market about to change direction; breaking above the upper band may signal a top, breaking below the lower band may signal a bottom; if the price hits a new high but the upper band doesn’t follow with strong momentum, or hits a new low but the lower band doesn’t follow, these could also be top or bottom signals.

Look for clues from three common indicators: MACD, KDJ, RSI—these are like “market detectors”—

MACD: If the price rises but the indicator doesn’t (divergence), it may signal a decline; if the price falls but the indicator doesn’t (divergence), it may signal a rise;

KDJ: Values over 80 indicate overbought conditions (excessive buying), suggesting a correction; below 20 indicates oversold conditions (excessive selling), suggesting a rebound;

RSI: Similar to MACD, it can show divergence; values over 70 indicate overbought, below 30 oversold, and it can be combined with trendlines to judge reversals.

Use moving averages (MA) as reference: Moving averages are the average price over different periods (like 5 days, 20 days, 60 days). A short-term MA crossing above a long-term MA (golden cross) may signal an uptrend; crossing below (death cross) may indicate a downtrend. When prices are far from the MA, a correction back to the MA is likely. MAs can also serve as support or resistance levels— for example, prices often bounce off the 20-day MA, or face resistance at the 60-day MA.

Comprehensive analysis + practical skills: Relying on a single signal can lead to misjudgment. It’s important to combine candlestick patterns, Bollinger Bands, indicators, and MAs, and check if signals across different timeframes are consistent. During trading, pay attention to abnormal volatility, major fund movements, and market sentiment (e.g., greed or panic). Set stop-loss orders, control position sizes— gradually add to positions after confirming the trend to avoid emotional trading. Regularly review and optimize your strategy.

In summary, identifying tops and bottoms in digital currencies involves “reading charts, analyzing channels, indicators, moving averages, and market sentiment.” The core is “multiple signals confirming each other,” combined with risk management, to improve accuracy and trading safety.