Clues Suggesting a Crypto Top Formation Might Be Near

The cryptocurrency market continues to trade around the highs and because of that, the odds of a Santa Claus rally are elevated. Reduced selling activity might be beneficial for optimistic buyers but at the same time, some people know that at some point the market will turn, leaving a lot unprepared and with significant losses.

Today we want to talk about 4 of the clues that might suggest a topping formation is near. Using them individually or in tandem could be appropriate, depending on the market conditions at any given moment.

# Exhausted buying

If we look at the 2017 crypto market performance, we can easily notice a topping formation signaled by exhausted buying. Bitcoin and most of the other large altcoins were reaching new all-time highs day after day, with their valuations edging up almost vertically. It is impossible to have prices move up indefinitely that way and most of the time, when the trend reverses, it does so impulsively. The key will be the timing because the move up can overextend.

# Engulfing reversal signal

Regardless of whether crypto is a store hold of value or not, there will be plenty of bear markets along the way, and engulfing reversal signals are common. In case you are using candlestick charts, you should look after a candle that engulfs the prior one, generally at the end of a bullish leg up. It is an advantage if it forms around a key resistance area because that means there is order flow behind it supporting a turn to the downside.

# Pinbar or fakeout signal

Pinbars and fakeout candles end up being extremely painful for buyers but for a seller anticipating a top correctly, will be a high-potential reversal signal. You can sell high and benefit from optimal pricing, without having to manage a negative position for a long period. Same as the prior signal, it is important to see if it occurs around the resistance zone, to make sure that the odds of a fake reversal are low.

# Extremely overbought conditions

Retail traders are still using oscillators to spot extreme overbought conditions. Especially on higher time frames, RSI or Stochastic might act as a warning before the markets turn. Look after extreme readings and use this method in combination with at least one of the three previously mentioned. Keep in mind that an asset can trade in the overbought zone for an extended period and that will be a major challenge to overcome when looking after a topping formation.