Following up on our last article on MVRV, today we will talk about another indicator that is looking like it’s getting close to a top.
The Pi Cycle Top Indicator was created by Philip Swift. It’s a very simple indicator to use and has been reliable in picking out market cycle tops within only a few days. The indicator uses an 111 day moving average and a 350 day moving average x 2.
If you’re unfamiliar, a moving average is used in technical analysis finance to smooth out pricing data of a ticker and get a better idea of the average over a set period of time. For example, with the 111 day moving average were taking the arithmetic mean of the prices over the last 111 days and plotting a line on the chart. Some traders use moving averages as potential support and resistance areas.
For the 350 day moving average x 2, we’re using the same concept but multiplying each price value of the 350 day by 2.
The reason this indicator is called Pi Cycle is because when dividing 350/111 we get the closest value to Pi (3.153 -> Pi = 3.142) when dividing 350 by a whole number.
Using this indicator is very simple. Every time the 111DMA (orange line) crosses the 350DMA x 2 (green line) to the upside, that has signalled a market top in previous bull cycles. It has been extremely accurate in all 3 previous bull cycle tops.
The logic behind the indicator is showing us that when the 111DMA crosses, the market is extremely overheated so much that a short-term 111 day moving average has reached a 2x multiple of the 350 day moving average. This gives us an indication that hype has taken over and short term buyers are controlling too much of the liquid supply.
As we can see in the chart, at first glance it looks as if the 111DMA is about to cross the 350DMA x 2. However, if we take a closer look it hasn’t touched it yet.
During the 2017 bull run, the 111DMA got close to the 350DMA x 2 all the way down at around $4,000 BTC. As the run-up continued there were pullbacks that moved the 111DMA back down since it’s more re-active to short-term prices changes which prolonged the eventual crossing at around $19,000 BTC.
As prices begin to pullback this week, even after the major Tesla news yesterday, we are once again taught that technicals remain king. This pullback is healthy to reset certain metrics that technical Bitcoin investors are watching and we have spoken about in this newsletter. Therefore this helps to continue this current bull cycle. Pullbacks as much as 30% are normal in Bitcoin bull cycles and it’s only going to get more volatile from here. Strap in for a ride to the moon.
In the news…
Resources I Use
I use Glassnode for all the metrics I track on the Bitcoin network. Their platform is extremely user friendly and fun to use.
Binance is the main exchange to trade the crypto markets.
Coinsquare offers Bitcoin trading in Canadian dollars and is one of the top exchanges in Canada.
Get a free intro course and access to a crypto chatroom with trade alerts and on-chain metrics.
I use Tradingview daily to analyze trading charts and find areas of support and resistance.
Nothing in this article is investment advice. I’m not a financial advisor. Do not make investment decisions based on what is in this article or any other article written by BTC News or Blockedia.