Pi-Cycle Bottom Indicator for Bitcoin
An extension to the existing Pi-Cycle Top indicator developed by Philip Swift (@PositiveCrypto).
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Developed by Trader Dončić
Disclaimer: This is not financial advice. Do your own research.
As of July 2022, this hypothesis has been invalidated.
The TradingView indicator can be found here.
Introduction
With cryptocurrencies reaching new principles in terms of awareness, it is undeniably important to continuously expand and improve current indicators, just as these assets update with new lines of code over time.
Philip Swift’s Pi-Cycle Top Indicator has successfully predicted market and local tops within 3 days, with the most recent occurrence occurring on May 12th 2021. Given the simplicity of his open-source model, it is one of the best indicators for determining when Bitcoin is significantly overbought.
Pi-Cycle indicators is merely just two moving averages which, when divided by each other, are equal to the value of π:
π = Long moving average / Short moving average
350/111 = 3.153; as per the existing Bitcoin Pi-Cycle Top indicator. The 350MA additionally has a 2x multiple.
If it were possible to determine the cycle/local top of Bitcoin, a similar analogy could be used to determine when Bitcoin is oversold.
Pi-Cycle Bottom for Bitcoin
To identify when an asset is oversold, the long moving average must have a multiple of less than 1. This is in contrast to the Philip Swift’s model, in which the multiple is 2.
Initially, the existing “Pi-cycle top moving average” pair (350/111) was realigned to see if they crossed at the Bitcoin price bottom. They did not; instead serving as a lagging indicator in both 2015 and 2018 bottoms. It was then realised that the existing pi-cycle model variables would have to be changed.
After several experiments with modifying the the length of the moving average, a possible pair was discovered when the short MA was set to 150:
π = Long MA / 150
Long MA = π * 150
Long MA = 471 (rounded to the nearest whole number)
This resulted in a Pi MA pair of 471/150.
Using the multiple x0.745 of the 471-day SMA and the 150-day EMA (exponential average to take into account of short term volatility), the price of Bitcoin bottoms at the cross of the two moving averages:
When the 150-day EMA crossed below the 471 SMA *0.745, Bitcoin’s price had bottomed for the market cycle. Additionally, over the last two market cycles, this indicator has been accurate to within 3 days.
Another finding was that Bitcoin suffered a larger correction at or near after closing below the 471 SMA*0.745 moving average. This could potentially be a beneficial in predicting volatility in the short-term future for Bitcoin.
Why 0.745?
It was purely random. A couple of moving average pairs (with ratio = π) were backtested on TradingView. 0.745 was the multiple that worked this pair of moving averages.
I encourage anyone with sufficient Python knowledge to automatically backtest their own pi-cycle pairs. It may result in the discovery of something new.
Pi-Cycle Bottom for Ethereum
My curiosity had further led me to finding a possible indicator for the bottom of Ethereum’s market cycle. A longer SMA was required due to the higher volatility of Ether’s price.
Using the 720-day SMA along side the 229-day SMA creates an accurate indicator that compensates Ether’s higher risk (standard deviation):
Given that Ethereum has only completed one full “cycle”, it will be very interesting to see whether this indicator would stand the test of time. The odds of the two moving averages not crossing at the bottom of Ethereum’s price action is highly more probable than doing so.
The numbers 720 and 229 also form π when divided by each other:
720 / 229 = 3.144
π = 3.142
Possible Limitations to the Pi-Cycle Bottom Indicator
The indicators could easily get invalidated if Bitcoin simply does not bottom when the two moving averages cross. For the time being, these indicators should be kept at the back of your mind until we do reach the bear market.
Conclusion
Swift’s Pi-Cycle Top indicator is only the tip of an iceberg of what could possibly be one of the greatest discoveries and uses of π. It seamlessly indicates the top of each Bitcoin cycle, and now, potentially the bottom of each cycle.
While I do not have an exact explanation to why Pi correlates to these peaks and bottoms yet, it is worth note taking that mathematics really is encrypted into the fundamentals of Bitcoin’s price action.
Analysis performed on paper:
