Before Bitcoin's halving and against the backdrop of general growth in the crypto market, the value of many coins and tokens increases. This resembles the events of 2021 when on November 10, the price of Bitcoin reached a record $69,040.10. In moments of strong growth and fear of missing out (FOMO), the market may approach previous peaks again.
In traditional finance (TradFi), this indicator is called the historical maximum (ATH) and is an important metric when analyzing market sentiment. In this article, we will discuss what ATH is, how to use it in trading, and what impact it has on cryptocurrency prices.
What is ATH?
ATH (All-Time High) is the highest price or maximum market capitalization of an asset over its entire existence. This term applies to all types of assets, including stocks, commodities, and cryptocurrencies. In the cryptocurrency world, ATH is the highest recorded price of a specific coin or token in the market.
It is important to consider that cryptocurrency prices are constantly changing, so ATH reflects only the highest price at a certain moment in time. In addition to price, some analysts track ATH of market capitalization, which is calculated as the product of the number of coins in circulation and the current price. This indicator can be updated even without a price increase of the token, for example, if coin burning has occurred and the total supply has decreased.
How did the ATH indicator come about?
When analyzing any asset, traders are interested in two key figures: the current price and the highest price in history. Comparing these figures helps assess the asset's dynamics and growth potential. ATH is also used to determine market trends: during a strong bullish movement, analysts forecast possible new highs, based on momentum and market sentiment.
The term ATH originated from traditional finance. In the stock market, updating a historical maximum often signals the good health of a company. In the cryptocurrency industry, ATH can also indicate growing interest in a project and its success.
ATH and ATL
The opposite indicator of ATH is the all-time low (ATL), which means the lowest price of the asset throughout its existence. While ATH is often perceived as a sign of growth, updating ATL may raise concerns among traders, especially during bear markets.
Several key points about ATL:
It is not a guarantee of future declines. The historical minimum does not mean that the price will drop back to it.
ATL can provide buying opportunities, especially if the project has strong fundamentals.
Cryptocurrency analysis should consider not only price but also its technology, team, development, and market prospects.
What happens when ATH is reached?
When a cryptocurrency reaches ATH, the market becomes more volatile. Some traders take profits, while others succumb to FOMO and start buying. At this moment, ATH often becomes a resistance level from which the price may pull back.
There are two trading strategies that can be used at such moments.
Bullish strategy: trading on a breakout
If the price confidently breaks ATH, it may indicate continued growth. The main steps for trading on a breakout:
1. Identifying opportunities: analyzing the chart for strong bullish momentum, increasing volumes, and positive news.
2. Confirming the breakout: it is important to ensure that the breakout is strong, for example, through retesting the level.
3. Choosing an entry point: usually, entry occurs when consolidating above ATH.
4. Setting a stop-loss: placed slightly below the broken level to minimize risks.
5. Profit-taking: a trailing stop can be used or a take-profit can be set in advance.
Despite the potential for growth, breaking ATH does not always lead to sustained growth, so it is important to consider corrections.
Bearish strategy: trading on a pullback
After reaching ATH, the market often corrects. The following tactic can be used for trading on a pullback:
1. Identifying a pullback: a price decline after ATH is accompanied by falling volumes and weakening momentum.
2. Confirming a reversal: signs of a bearish trend, such as breaking support levels or indicator signals (RSI, MACD).
3. Choosing an entry point: short positions are opened after confirming a pullback.
4. Setting a stop-loss: placed above ATH to limit potential losses.
5. Profit-taking: trailing stop or setting a take-profit when the target level is reached.
Having understood ATH and ATL, traders can better navigate market dynamics and make more informed decisions. The main thing is not to succumb to emotions and use sound strategies for trading in high volatility conditions.