There has been a surge of valuable tools to help investors predict the future trends of the market and develop a trading strategy to maximize gains. One such popular tool widely known for predicting the price movements of the Bitcoin (BTC) market is the Pi Cycle Indicator. This technical analysis tool observes the past price changes of BTC and uses the information to predict the highs and lows of the market.
What is the Pi Cycle Top Indicator?
The Pi Cycle is an incredibly easy yet effective technical analysis indicator created by analyst Philip Swift in April, 2019. This indicator has gained huge popularity in the crypto space owing to its simplicity and reliability. The signals generated by this indicator have historically managed to accurately predict the tops and bottoms in the Bitcoin market cycle on multiple occasions.
The Pi Cycle Top Indicator works by precisely predicting a top signal for the BTC market cycle within an accuracy of 3 days. It necessarily means this tool attempts to forecast a point in the cycle where the BTC price will peak before pulling back. Its historical performance depicts that since its creation, the Pi cycle Top Indicator has managed to give signals that perfectly coincided with four different BTC price cycle Tops.
On the other hand, to predict the bullish trend of the BTC price cycle, investors use the Pi Cycle Bottom Indicator. Over the past two cycles where BTC bottomed out before showing a recent flash, this indicator has been accurate within 3 days to predict the bear market status.
How does a Pi Cycle Indicator work?
Generation of the Pi Cycle Top signals work by using a combination of moving average (MA) technical indicators. MAs typically show the average price of an asset over a specific period. The Pi Cycle Top Indicator uses two daily MAs: 111-day simple MA and a newly created 2x multiple of 350-day MA. It should be noted here that this multiple is of the price values of the 350-day MA instead of the number of days.
Moreover, both MAs can be considered as long-term averages. However, the former (i.e., 111-day MA) uses fewer days to calculate the average and takes into account a smaller time frame. Therefore, 111-day MA shows more sensitivity to price changes as compared to 350-day MA.
In the chart shown above, the Pi cycle indicator paints the overall direction of the market trend in a simplified manner. The white line represents the 111-day MA while the other smooth line indicates the multiplied 350-day average.
It is worth mentioning that in a normal setting, the 2x multiplied 350-day MA should be far above its 111-day MA counterpart. However, in the rare instances where the 111-day MA crosses the multiplied 350-day MA in an upward direction, a peak signal from Pi Cycle Top Indicator is generated. This can be clearly understood from the image shown above where every time the white line (i.e., 111-day MA) crossed the 350-day MA (even if briefly), it coincided with the BTC price peaking.
Over the years, the signals generated by the Pi Cycle Top Indicator have accurately predicted the timings of BTC market cycle highs. However, it is the viewpoint of critics that the model has been curve-fitted and the most recent prediction of the price cycle was a mere coincidence.
The Pi Cycle Top Indicator is one of the most straightforward and simple technical analysis tools. Its potential in indicating the asset’s price trends has been testified multiple times in the past. Though, as with any indicator, traders and investors should not base their decisions solely on the signals provided by the indicator. Instead, they should also do their research with multiple tools and then take their investment decision
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/06/18/predicting-bitcoin-market-trends-with-the-pi-cycle-top-indicator/