Everyone who has any experience with trading markets knows that it's virtually impossible to call price tops, but is that really the case? Are there truly no reliable ways to call tops using purely technical analysis (TA)?
Obviously, no pattern will play out 100% of the time and no method of trading is 100% accurate. But I'm sure you'd agree that being even 51% accurate is useful when it comes to getting an edge in trading, no? Does this type of accuracy exist for calling tops?
Well, my short answer is "I don't know."
I know. Really useful, right?
Does this mean that I click-baited you with my title? That I'm outright lying to you about having a method that could be useful for predicting price tops in bitcoin?
Well, no, not really.
I think that I actually do have something useful to share on this topic and it looks as follows...
[note: the above is a logarithmic weekly chart of bitstamp]
Allow me to explain a bit.
I've experimented a lot with price channels (or "parallel channels", if you prefer) in different markets (stocks, ETFs, bonds, precious metals, currency pairs, cryptos, etc) over the years. A price channel describes when price action happens primarily, if not completely, between two parallel lines (such as the two black lines on the zoomed in look of the above chart, shown below).
Notice how well over 95% of the price action is held between those two parallel lines and that the major tops and bottoms within the channel, moments when price pivots to the up/ down side, tend to happen very close to, if not right on, either of those two lines. This is a textbook example of a "validated price channel".
It's a good practice to look for parallel lines to any validated trend-lines (lines that hold up as support or resistance at least three consecutive times), as I'm sure you'll find that price action will often react fairly predictably to some parallel (support or resistance) to that line, which is useful information to have when trying to predict where future price pivots might happen. That's the primary function of uncovering price channels.
What of the secondary?
Not as common in the TA-world, but something that I have found to be useful, is to retroactively extend parallel lines (to a trendline or price channel) off of past pivot highs that are outside of any current price channel that may exist, based on this current trendline/ price channel. This is what I did in the first chart with the blue line. You can clearly see that the high the line was drew off of (marked by the orange arrow furthest to the left) is outside of the price channel that it was based on (all price action between the two black lines on the chart).
And you can clearly see the value of making such an effort by moving your pupils over to the other orange arrow, which just so happens to mark the current bitcoin all-time high (ATH) almost perfectly. Is that merely a coincidence, or is there something to this?
I have found through studying the price action of different markets, particularly trending markets, that it's not at all uncommon for this type of method to work for predicting where a market will pivot in a significant way, as with the current bitcoin "bubble pop". Of course, it doesn't really tell us the exact price that it will happen, since we would have to know the exact time in order to know where that parallel line will be priced. What it does do is give us a realistic ceiling for where price MIGHT pivot, when price is trading relatively closely to one such parallel resistance line (eg the blue line on the first chart, based off of the price channel in black lines).
While I wouldn't personally use a test of one such parallel resistance line as an indicator to automatically short a market, I certainly would use it as a signal to start selling at least parts of my long position and as a warning to not take any further long positions, as it's a fairly reliable indicator that a major pivot may be in the cards in the near future. However, as I alluded earlier, it's not a fail-safe method.
As with anything else in TA, it's all about trying to align our trades with the highest odds presented by the price action, with respect to any patterns that we have noticed in the market's past.
NOTICE: THIS IS NOT TRADING ADVICE!
I don't consider myself an "expert" at technical analysis, nor should you. I share only my opinion on the usefulness of the method presented above.
I would like to remind you that you're (presumably) an adult - and (if it's the case that you're an adult) that makes YOU SOLELY responsible for your decisions! Trading and investments are no exceptions!!!
Far more important than any of this stuff about where the market is going or what ways you can multiply your wealth is your own spiritual development as a human. If you place responsibility for any of your decisions on anyone other than yourself; if you place the highest authority with anyone other than yourself (as an adult), you're going to suffer more than you ever could from a poor investment decision. Trust me on this one.
Do yourself a favor and don't play the victim. You're much stronger than that.
And that's a healthy dose of the truth for you, my friend :)