Is BTC finding its top at the end of the ride, and now the market rollercoaster starts? Are we about to see a sell-off and a retracement period?
Let's delve into the fascinating world of market cycles, especially in highly volatile asset classes where all-time highs (ATHs) have recently been reached.
1. **Volatility Cycles and Behavior**:
- **Volatility** refers to the variations in market prices. The more an asset's price moves, the higher the volatility; conversely, less movement results in lower volatility.
- **Volatility spikes** often occur across major financial markets. These spikes share common characteristics despite arising from different reasons and markets.
- A typical **volatility event cycle** unfolds as follows:
- **Build-up Period**: Before a volatility spike, volatility gradually rises. This hints at potential market dislocation.
- **Sudden Spike**: Volatility then experiences a vertical surge, reaching a climax.
- **Normalization Phase**: After the spike, volatility reverses and gradually normalizes, albeit with bumps.
2. **Cryptocurrencies (e.g., Bitcoin)**: After ATHs, cryptocurrencies often follow a pattern:
- Rapid surge beyond the ATH.
- Correction and value shedding.
- Oscillation with diminishing volatility.
- Gradual upside continuation before the next significant event (e.g., halving)³.
3. **Retracement Levels and Fibonacci**:
- **Fibonacci retracement levels** help identify potential reversal points on price charts.
- Key retracement levels include:
- **38.2%**: Often rounded to 38%.
- **50%**: Not directly from Fibonacci but widely used.
- **61.8%**: Rounded from the Fibonacci sequence.
- These levels are applied after an advance (to forecast corrections) or after a decline (to predict counter-trend bounces).
- The Fibonacci sequence and the Golden Ratio (1.618) play a crucial role in these retracement levels⁵.
- For example, the 38.2% retracement is based on dividing a number by another two places higher, approximating 0.3820. Similarly, the 61.8% retracement is based on dividing by the next highest number, approximating 0.6180⁵.
Understanding volatility cycles, asset-specific behavior, and retracement levels can guide investment decisions during highly volatile periods. While each market cycle is unique, historical precedent provides valuable insights.
(1) Historical Volatility: A Timeline of the Biggest Volatility Cycles. www.dailyfx.com/educ...cal-volatility.html.
(2) Bitcoin Market Cycles Explained - CoinShares. coinshares.com/resea...et-cycles-explained.
(3) Fibonacci Retracements - StockCharts.com. school.stockcha...ts.com/doku.php?id=chart_a...
(4) Market Cycles: Understanding Phases, Strategies, and Real-world .... www.supermoney.com/e...pedia/market-cycles.
(5) Market Cycles: The Key to Maximum Returns - Investopedia. www.investopedia.com...ey-maximum-returns/.
(6) Retracement vs. Reversal: What's the Difference? - Investopedia. www.investopedia.com...06/retracements.asp.
(7) What Are Fibonacci Retracement Levels, and What Do They Tell You?. www.investopedia.com...acciretracement.asp.
Let's delve into the fascinating world of market cycles, especially in highly volatile asset classes where all-time highs (ATHs) have recently been reached.
1. **Volatility Cycles and Behavior**:
- **Volatility** refers to the variations in market prices. The more an asset's price moves, the higher the volatility; conversely, less movement results in lower volatility.
- **Volatility spikes** often occur across major financial markets. These spikes share common characteristics despite arising from different reasons and markets.
- A typical **volatility event cycle** unfolds as follows:
- **Build-up Period**: Before a volatility spike, volatility gradually rises. This hints at potential market dislocation.
- **Sudden Spike**: Volatility then experiences a vertical surge, reaching a climax.
- **Normalization Phase**: After the spike, volatility reverses and gradually normalizes, albeit with bumps.
2. **Cryptocurrencies (e.g., Bitcoin)**: After ATHs, cryptocurrencies often follow a pattern:
- Rapid surge beyond the ATH.
- Correction and value shedding.
- Oscillation with diminishing volatility.
- Gradual upside continuation before the next significant event (e.g., halving)³.
3. **Retracement Levels and Fibonacci**:
- **Fibonacci retracement levels** help identify potential reversal points on price charts.
- Key retracement levels include:
- **38.2%**: Often rounded to 38%.
- **50%**: Not directly from Fibonacci but widely used.
- **61.8%**: Rounded from the Fibonacci sequence.
- These levels are applied after an advance (to forecast corrections) or after a decline (to predict counter-trend bounces).
- The Fibonacci sequence and the Golden Ratio (1.618) play a crucial role in these retracement levels⁵.
- For example, the 38.2% retracement is based on dividing a number by another two places higher, approximating 0.3820. Similarly, the 61.8% retracement is based on dividing by the next highest number, approximating 0.6180⁵.
Understanding volatility cycles, asset-specific behavior, and retracement levels can guide investment decisions during highly volatile periods. While each market cycle is unique, historical precedent provides valuable insights.
(1) Historical Volatility: A Timeline of the Biggest Volatility Cycles. www.dailyfx.com/educ...cal-volatility.html.
(2) Bitcoin Market Cycles Explained - CoinShares. coinshares.com/resea...et-cycles-explained.
(3) Fibonacci Retracements - StockCharts.com. school.stockcha...ts.com/doku.php?id=chart_a...
(4) Market Cycles: Understanding Phases, Strategies, and Real-world .... www.supermoney.com/e...pedia/market-cycles.
(5) Market Cycles: The Key to Maximum Returns - Investopedia. www.investopedia.com...ey-maximum-returns/.
(6) Retracement vs. Reversal: What's the Difference? - Investopedia. www.investopedia.com...06/retracements.asp.
(7) What Are Fibonacci Retracement Levels, and What Do They Tell You?. www.investopedia.com...acciretracement.asp.