Altcoin News: The Analyst Has Built a Model to Determine the Maximums of Bitcoin Based on the Golden Ratio
This week analyst Philip Swift published an article under the heading “The Golden Ratio Multiplier — Unlocking the mathematically organic nature of Bitcoin adoption.”
According to him, the tool helps to understand the cyclical nature of the spread of Bitcoin as a technology and to determine market maxima both within cycles and for entire cycles separately.
According to Swift, the 350-day moving average all this time served as the axis around which large cycles of Bitcoin were built. As soon as the price overcomes this level, a bullish trend is confirmed.
A curious picture emerges if you multiply the value of the moving average by other important values: the golden ratio (1.618) and the Fibonacci sequence (1, 2, 3, 5, 8, 13, 21).
This method allows you to determine most of the price highs inside the cycles on the historical data of Bitcoin exchange rate, as well as the maximums of each cycle separately.
The multiplier of the golden section (350MA x 1.6) — the green line. Historically serves as important support and resistance.
In particular, it became a resistance during the current rise from December 2018 lows. At the first contact, there was a failure, because of which the price dropped by $1,500.
Multiplying the moving average by the number 2 from the Fibonacci sequence, the analyst gets the red line, which serves as another important level of support and resistance and can be used by traders to predict short-term movements — for example, to determine the moments of profit.
The next number is the 3 — purple line. It has become a strong resistance to the bull market in 2017 and has kept the price down five times.
All these three lines correspond to one or another maximum inside Bitcoin cycles. With further progress on Fibonacci numbers (5, 8, 13, 21), the analyst finds maxima for each individual cycle, including the first Bitcoin bubble in 2011.
- 350DMA x21 = Maximum 2011
- 350DMA x13 = Maximum 2013
- 350DMA x 8 = Maximum 2014
- 350DMA x5 = Maximum 2018
How to use this tool in practice?
Swift draws attention to the fact that the multiplier of the golden section should not be used in isolation, but it can help assess the risks in specific situations. For example, historical data shows that by acquiring Bitcoin at the time of breaking the 350-day moving average and then consistently extracting profit at the time of first contact with x1.6, x2, x3 levels, after which buying cryptocurrency at lower levels, you could build a very successful investment strategy, the culmination of which would be selling at a maximum corresponding to level x5.
If the trend continues, the maximum of the current cycle will be found at x3 (purple line).
Why does multiplying the 350-day moving average by these numbers give such results? Swift explains this by the psychology of investors who tend to perceive the situation too pessimistic or too optimistic.
He quotes the publication of the author Dima Vonko for the portal Investopedia:
“In many cases, it is believed that humans subconsciously seek out the golden ratio. For example, traders aren’t psychologically comfortable with excessively long trends. Chart analysis has a lot in common with nature, where things that are based on the golden section are beautiful and shapely and things that don’t contain it look ugly and seem suspicious and unnatural. This, in small part, helps to explain why, when the distance from the golden section becomes excessively long, the feeling of an improperly long trend arises.”
At this Swift does not stop. He added a 111-day moving average multiplied by 2 350-day moving average and got another indicator. When 350DMA x2 drops below 111DMA, the Bitcoin price peaks for the current cycle. During the last three cycles, this happened three times, and the indicator was triggered within three days of reaching the maximum course.
The analyst recommends following this indicator closer to the expected end of the bull cycle.
“Perhaps the main value of this tool is not the advantages for trading and investment, but the ability to demonstrate that the spread of Bitcoin and herd behavior of a person follow mathematical models,” Swift concludes.
You can play with the graph shown in the screenshots — here.
Author: Marko Vidrih
Images via http://philipswift.pythonanywhere.com/