Reading divergences to prepare for reversals, part 2
Metrics used: Daily Active Addresses, Age Consumed
Charts layout: https://app.santiment.net/s/LBO9neN4
Two weeks ago, when the first part of this article was released, things were looking quite worrying. Yet, some signs of the upcoming “bottoming up” were emerging during this time.
Let’s check two of the metrics which, in our opinion, are “must have” for every crypto investor.
These are “Age Consumed” and “Active Addresses”. They show some specific patterns when we're building the bottom. In order to spot it, one needs to analyse several assets, somewhere between 5 and 10.
Tokens have similar patterns. It starts when active addresses increase on a dumping price. Then slightly before falling price. Then chilling and price surging.
First token, YFI:
Have we seen a classic divergence between price and active addresses? Yes, network activity increase is visible on a price downtrend. Active addresses started to grow around Feb 1, while price kept falling. And we surged from there. Please notice that we had similar behaviour on the 21-st of January - that was an early sign.
Similar divergence started around January 21. And then we seen it again on January 24. And something developing right now btw.
It started same days, around mid January. Active addresses started to grow and price very slowly followed the uptrend.
On a very basic level price divergences with daily active addresses are able to give very first signals when comparing with price action. Indicating that something significant is brewing, a reversal probably.
Mind the context, it’s very important to understand what has happened before. MKR, SUSHI, UNI - it took more than one single divergence before price reversed. Divergence as a sign of capitulation in this case. Massive onchain activity and age consumed spikes, old holders moving or exiting. But someone is buying. New blood is coming. Redistribution happening.
Age Consumed is often another reversal indicator, from downtrend to uptrend usually.
Have a look at SPELL:
Panic, bad news, capitulation, RIP - all perfect bottom signs are on this chart.
So how does the market flip? Where to spot reversal indicators?
You have to overview many tokens at once. Apply simple metrics on a broad range of tokens. Trying to analyze the behavior of market participants behind it. Understanding general onchain activity measured by as simple metrics as daily active addresses and age consumed.
Here is the pattern we are looking for:
- The price is dumping.
- Then suddenly, or actually when market sentiment reaches its minimum, active addresses start to grow.
- Price follows. Sometimes price keeps remaining in some range but then suddenly breaks it upwards.
Best to combine active addresses with age consumed which shows that old tokens are moving massively. YFI as example. The moment they are doing this is a high risk/high reward point. Your attention should be maximal at this moment.
And the market probably reverses.
Charts used: https://app.santiment.net/s/LBO9neN4
Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
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