What is a bottom in cryptocurrency?
The bottom, floor, or floor price is the lowest price that a cryptocurrency has traded at in a given period of time. Thus, the period under consideration depends on the unit of time under consideration. We can have yearly, quarterly, etc. bottoms just like we can have intraday bottoms for short-term traders.
The term “bottom” is often referred to in connection with downtrend. The bottom will then be a transition between a downtrend and a possible uptrend.
Thus, when bitcoin falls, the bottom will be the point at which the price of the cryptocurrency stops falling and eventually rises.
In the chart below, bitcoin is making a bottom, highlighted with a green circle.
Because market bottoms are historically the best time to buy (and worst time to sell) assets, everyone wants to know when a bottom will form and there is often a lot of speculation.
Unfortunately, bottoms are often discovered after the factand a good time is easier said than done.
But there are technical signals that we will see that buy not at the absolute bottom, but slightly higher.
Here’s Why Bitcoin’s Fall in 2022 Will End [Bottom].
How to Spot a Bottom by Watching a Chart (Price Action)
Using technical analysis, you can identify the bottom by looking at the chart. Here are 3 patterns that can form during a bottom.
A double bottom is a chart pattern that indicates that the market has probably bottomed out. It consists of two W-shaped recesses. The ends of the two recesses have essentially the same price.
The horizontal line that crosses the price level of the highest level of the pattern is called the neck line or neckline in English.
An upward break of the neckline is often seen as a confirmation of a bottom and an upward rally, as well as a buy signal.
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In the chart above, bitcoin is falling, forming a double bottom and breaking the neck line up. Even if we missed the absolute bottom at the end of the troughs. We could buy on a breakout of the neck line.
As the name suggests, a triple bottom consists of 3 troughs, the ends of which have almost the same prices. It’s like adding another V to the W. The triple bottom is a bit like a pattern called inverted shoulder-head-shoulder. For this last figure, the price of the trough in the middle is lower.
As with the double top, a break of the neck line signals a confirmation of the bottom and a recovery to the upside. Some investors take this as a buy signal.
The price action may continue to draw bottoms beyond the three bottoms. Then we have the formation of a rectangle, which is theoretically a continuation of an already established trend.
That is, if we have a downtrend followed by a rectangle, the latter is more likely to be broken.
But if we have a breakout of the neck line on the rise, we take it for a rectangular bottom. We have a bottom formation in the rectangle above.
If these 3 formations don’t appear systematically at the bottom, you can still take advantage of them once they become a convincing buy.