Introduction

Amid the waves of the cryptocurrency market, altcoins, as a diverse asset class beyond Bitcoin, are gradually becoming a key area for investors seeking emerging opportunities. With the evolution of market cycles, altcoins often demonstrate the potential for greater appreciation than mainstream cryptocurrencies during specific phases, particularly during the critical period known as the Alt Season. Alt Season is a unique phenomenon in the crypto market, characterized by Bitcoin’s breakout rally, which leads to capital gradually flowing from Bitcoin into various altcoins. This influx drives rapid price surges, creating a wealth frenzy. However, amid this financial feast, the key challenge for every investor is how to time their entry precisely.

Faced with the market’s complexity and uncertainty, investors resemble navigators sailing through fog, in need of a guiding beacon. Altcoin positioning indicators serve as this beacon, piercing the uncertainty to reveal the market’s underlying patterns and potential opportunities. These indicators function like sophisticated instruments, capturing market dynamics from multiple perspectives. Whether it’s price trends, trading volume fluctuations, or subtle shifts in capital flows, they provide valuable insights that help investors identify optimal entry points and seize opportunities amid market waves.

This article will introduce the Top 10 altcoin positioning indicators from two perspectives: sector indices and individual coin indices.

First, let’s evaluate the effectiveness of these indicators across different phases of the altcoin market, including the early stage, the main upward phase, and the final stage.

Altcoin Sector Trend Indicators

In the cryptocurrency market, altcoins, as a diverse asset class beyond Bitcoin, require investors to monitor market trends closely. To capture high-quality altcoins, it is crucial first to determine whether the overall market leans toward a bullish or bearish trend. Below, we will explore four key sector indicators in detail:

Altcoin Season Index

The Altcoin Season Index measures the performance of altcoins (non-Bitcoin cryptocurrencies) in the market. It helps investors assess whether altcoins are outperforming Bitcoin over a specific period, providing insights into market trends and investment opportunities.

The Altcoin Season Index is typically based on the following factors:

• Relative Performance: This compares Bitcoin’s performance with major altcoins. If most altcoins outperform Bitcoin, it indicates the market has entered an “Altcoin Season.”
• Market Cap Dominance: Bitcoin’s market cap dominance (Bitcoin Dominance) is a key reference metric. When Bitcoin’s dominance decreases, it often signals capital flowing into altcoins, which could indicate the start of an Altcoin Season.
• Trading Volume and Price Volatility: The trading volume and price fluctuations of altcoins are important indicators. If altcoin trading volume and prices surge while Bitcoin remains relatively stable, it may suggest the onset of an Altcoin Season.
• Social Media and Community Sentiment: The level of discussion on social media, news coverage, and community sentiment can also serve as supplementary indicators. A surge in interest and attention toward certain altcoins may drive their prices higher.
• Identifying Market Trends: By utilizing the Altcoin Season Index, investors can better determine whether the market is in a Bitcoin-dominant phase or an Altcoin Season. If the index indicates strong altcoin performance, investors may consider reallocating a portion of their capital from Bitcoin to altcoins.

Source: https://www.coinglass.com/pro/i/alt-coin-season

Bitcoin Market Dominance (BTC.D)

BTC.D represents Bitcoin’s market dominance across the entire crypto market. When BTC.D is high, typically above 60%, Bitcoin season is dominant, and altcoins tend to underperform. Conversely, when BTC.D declines, liquidity gradually shifts to altcoins, often signaling the arrival of Altcoin Season. For example, if BTC.D peaks at a key resistance level and starts to decline, it serves as a crucial signal of liquidity rotation.

Source: https://www.tradingview.com/markets/cryptocurrencies/dominance/

Ethereum vs. Bitcoin Relative Performance (ETH/BTC)

ETH/BTC is one of the most important charts in the crypto market. When Ethereum underperforms against Bitcoin, altcoins generally struggle. On the other hand, if Ethereum strengthens and holds key support levels, it often indicates a potential Altcoin Season. As one of the largest participants in the crypto ecosystem, Ethereum’s performance significantly influences the broader market trend.

Source: https://www.gate.io/zh/trade/ETH_BTC

Individual Altcoin Selection Indicators

Once the broader trend of the altcoin sector is understood, investors should zoom in on individual coins. Transitioning from sector trend indicators to individual coin indicators is based on two key considerations: While overall market trends provide a macro background, investment decisions require a micro-level analysis of individual altcoins. Different altcoins perform differently throughout market cycles—some rally early due to project strengths, while others lag due to various factors, necessitating more detailed analytical tools. Individual coin indicators help investors identify the most promising altcoins within a confirmed sector trend, enabling precise investment decisions. These indicators focus on market performance, technical structures, fundamental project aspects, and market sentiment, all of which directly impact an altcoin’s short-term volatility and long-term value.

Simple Moving Average (SMA)

The SMA calculates the average price over a specific period, offering investors a clear visualization of price trends. Short-term traders typically monitor the 5-day or 10-day SMA, while long-term investors often reference the 100-day or 200-day SMA. When the price is above the SMA, it is generally considered a bullish signal; conversely, if it falls below, it may indicate a downtrend. This indicator acts as the market’s “average pulse,” helping investors grasp the overall price direction.

Source: https://www.gate.io/trade/ETH_USDT

Relative Strength Index (RSI)

The RSI is a momentum oscillator that analyzes the speed and rate of price changes to determine whether an asset is overbought or oversold. It ranges from 0 to 100, with readings above 70 typically indicating overbought conditions and below 30 suggesting oversold conditions. RSI acts as the market’s “sentiment thermometer”, alerting investors to potential reversal risks when the market is overheated or too cold.

Source: https://www.gate.io/trade/ETH_USDT

Fibonacci Retracement

Based on the Fibonacci sequence, this indicator marks key price levels above and below the current market price, helping traders identify potential support and resistance levels. The most commonly used retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Fibonacci retracement functions as the market’s “golden ratio”, revealing crucial areas where prices may bounce or face resistance, making it an essential tool for entry and exit strategies.

Source: https://www.gate.io/trade/ETH_USDT

Moving Average Convergence Divergence (MACD)

The MACD is a trend-following momentum indicator that represents the difference between an asset’s short-term and long-term moving averages. It consists of the MACD line, signal line, and histogram, which help traders assess market momentum. MACD serves as the “engine of market movement”, with crossovers between the MACD and signal lines or specific histogram formations signaling potential market shifts.

Source: https://www.gate.io/trade/ETH_USDT

Stochastic Oscillator

The Stochastic Oscillator is a momentum indicator that uses an asset’s closing price to determine overbought and oversold conditions. It is often used alongside moving averages to filter out noise and improve signal accuracy. Acting as the “microscopic market detector”, it analyzes the relationship between the closing price and its price range to reveal short-term momentum changes.

https://www.gate.io/trade/ETH_USDT

Ichimoku Cloud

The Ichimoku Cloud is a comprehensive technical analysis tool that includes multiple components such as the cloud (Kumo), leading span (Senkou Span), and base line (Kijun Sen). It helps determine trend direction, strength, and potential support/resistance areas. The Ichimoku Cloud functions as the “market panorama”, offering investors a broad view of trends and key price zones to better understand the overall market structure.

Source: https://www.gate.io/zh/trade/ETH_USDT

Aroon Indicator

The Aroon Indicator is a trend-following tool that measures the time elapsed between the highest highs and lowest lows to determine trend direction and strength. It consists of Aroon Up and Aroon Down lines, representing the time elapsed since the highest and lowest prices within a given period, respectively. The Aroon Indicator acts as the “trend compass”, helping investors identify whether the market is in an uptrend or downtrend.

Source: https://www.gate.io/trade/ETH_USDT

On-Chain Metrics

On-chain metrics provide insights into the fundamental health and activity of a cryptocurrency or token. Common on-chain metrics include Network Value to Transaction Ratio (NVT), miner revenue, and daily active addresses. These metrics help assess market trends, overall health, and potential future price movements. On-chain metrics serve as the “health check report” of the market, offering investors a deep understanding of the underlying market conditions and potential growth trends based on blockchain data.

For example, the NVT on-chain metric: NVT (Network Value to Transaction Ratio) is an indicator that measures the relationship between the market value and transaction activity of cryptocurrencies. It compares the market capitalization (Market Cap) with the daily on-chain transaction volume (Transaction Volume) to help investors assess the relative valuation of the market. Glassnode is a leading blockchain data and intelligence platform that provides comprehensive on-chain and financial metrics, including NVT data. Users can access real-time and historical NVT data through its platform for market trend analysis. [2]

• Through the NVT ratio, users can observe the relative balance between these two components, with trends and extremes provided by the following general framework:
• A high NVT ratio (or upward trend) indicates that investors are overpricing Bitcoin, as the market capitalization growth rate exceeds the on-chain transaction volume and value settlement utilization. Historically, high NVT ratio values align with market tops and periods of overvaluation.
• A lower NVT ratio (or downward trend) suggests that investors are underpricing Bitcoin, as on-chain transaction volume and network utilization exceed market capitalization growth. Historically, lower NVT ratio values are favorable for accumulation and typically align with market bottoms and trending bull markets.
• A constant NVT ratio (or sideways trend) indicates that the growth trends of market capitalization and transfer volume are balanced, suggesting that the current market trend is sustainable. This state typically occurs in the early to middle stages of a bull or bear market trend when the market direction is already clear.

Source: https://docs.glassnode.com/guides-and-tutorials/metric-guides/nvt/nvt-ratio

In altcoin investment, these position-building indicators each have their own characteristics and advantages. Investors can select a suitable combination of indicators based on their trading style and investment goals to improve the accuracy and effectiveness of investment decisions. At the same time, it is important to note that no indicator is foolproof; they are merely tools to assist decision-making. Investors should also consider factors such as market fundamentals and news, and conduct comprehensive analysis and judgment to navigate the complex cryptocurrency market steadily and achieve the preservation and appreciation of their assets.

Technical Indicator Selection Flowchart

To help investors better understand and apply these indicators, the following is a simplified flowchart for selecting technical indicators.

Source: Gate.io

Indicator Combination Validation

In the cryptocurrency market, a single indicator is often insufficient to accurately predict market trends. Therefore, investors typically combine multiple indicators for comprehensive analysis to improve decision-making accuracy. Below is a specific example showing how to confirm a position-building signal when Bitcoin’s market dominance (BTC.D) falls below 45%, based on the relative performance of Ethereum and Bitcoin (ETH/BTC) on the weekly chart and the altcoin sector’s relative strength index (RSI) collectively becoming oversold.

• BTC.D falls below 45%: Taking June 2022 as an example, at this time, BTC.D was 48% and then fell below 45%.

Source: https://www.tradingview.com/symbols/BTC.D

• ETH/BTC Weekly Chart Breakout: Observing the relative performance of Ethereum and Bitcoin (ETH/BTC) on the weekly chart, around June 20th, the chart clearly touched the bottom and showed a rebound. This indicated that the altcoin season had arrived.

Source: https://www.gate.io/trade/ETH_BTC

• Altcoin Sector RSI Being Oversold: Taking LTC as an example, at this time, the RSI trendline for LTC was 33.16, indicating an oversold condition. Based on the BTC.D and ETH/BTC indicators, we can consider this a position-building signal. Looking at the weekly chart, if a position is built at this point, the price will see an increase of over 100% in a few weeks.

Source: https://www.gate.io/trade/LTC_USDT

Risk Analysis and Position Management

Typical Risk Case Analysis

In May 2021, mainstream cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) reached all-time highs. However, market sentiment began to shift, and some investors started taking profits, leading to signs of a market pullback.

During this month, on-chain monitoring platforms detected a large number of large transactions. These transactions mainly occurred between major cryptocurrency exchanges, indicating that a significant amount of funds were flowing out of exchanges. Such capital movement is often seen as a warning signal that the market is about to decline, as it could suggest that large holders (such as institutional investors or whales) are selling their positions.

As large transfers increased, the market price began to experience significant declines. Bitcoin’s price dropped from nearly $60,000 to about $30,000, a decrease of over 50%. The altcoin market was also severely impacted, with many altcoins losing more than 70% of their value. This sharp price fluctuation caused panic in the market, and many investors suffered significant losses in a short period.

This event highlights the importance of on-chain data monitoring in risk management. By closely monitoring large on-chain transfers, investors can promptly capture shifts in market sentiment and adjust their investment strategies to minimize potential losses. Additionally, it serves as a reminder for investors to remain cautious at market highs and avoid blindly chasing prices.

Indicator Failure Scenarios and Hedging Strategies

Indicator Failure Scenarios

In low-liquidity altcoins, a death cross (where the short-term moving average crosses below the long-term moving average) may produce more false signals. Due to the low trading volume of these coins, prices are more susceptible to large transactions, causing indicators to generate false sell signals.

Case Analysis: For example, an altcoin experiences a large sell-off in the short term, causing the short-term moving average to fall below the long-term moving average, forming a death cross. However, this sell-off could be a short-term behavior of an individual whale, rather than a change in the overall market trend. If investors solely rely on the death cross signal to sell, they may miss out on the subsequent price rebound.

Market Panic Leading to Indicator Failure: During panic sell-offs in the market, many technical indicators may fail. For example, the Relative Strength Index (RSI) might show oversold conditions, but the price could still continue to decline because market sentiment is dominating the price movement.

Uncertainty in Macro Policies: Changes in government policies (such as cryptocurrency trading bans or tighter regulatory policies) may lead to sharp market fluctuations, causing technical indicators to lose their reference value. For example, in 2021, China’s ban on cryptocurrency trading led to a significant market downturn, during which many technical indicators failed.

Risk Management Strategies

• Setting Stop-Loss Points

Operation: Investors should set clear stop-loss points for each investment position to limit potential losses. For example, automatically sell assets when the price falls by a certain percentage.

Risk Management Effect: Stop-loss points help investors exit the market in a timely manner when conditions are unfavorable, preventing further losses.

• Regularly Reassessing Strategies

Operation: Investors should regularly reassess the effectiveness of their investment strategies and indicators, adjusting their portfolio based on market changes. For example, review the portfolio every quarter to ensure it aligns with the current market environment.

Risk Management Effect: Regular evaluations ensure the timeliness and effectiveness of investment strategies, preventing strategies from becoming ineffective due to market changes.

Correlation Between Stop-Loss Rules and Indicator Signals

• BTC.D Breaking Key Support: When Bitcoin’s market dominance (BTC.D) breaks through a key resistance level, it may indicate a shift in market sentiment. Investors should consider reducing their altcoin positions and reallocating funds to more stable assets. For example, at the end of January 2025, BTC.D broke a key resistance level, and soon after, altcoin prices saw a significant decline compared to BTC.

Source: https://www.tradingview.com/symbols/BTC.D/

• ETH/BTC Weekly Breaks Key Support: If Ethereum’s relative weekly chart against Bitcoin breaks a key support level, this may be a strong sell signal, indicating a potential market trend reversal. Investors should consider stopping out and exiting the market.

Source: https://www.gate.io/trade/ETH_BTC

• Altcoin Sector RSI Overbought: When the RSI indicator of the altcoin sector collectively exceeds 70, it suggests the market is in an overbought state, and prices may soon correct. Investors should consider reducing their positions to avoid potential losses from a market reversal.

Source: https://www.gate.io/trade/LTC_USDT

Taking LTC as an example, on December 5, 2024, the RSI value reached 78.82, and the price subsequently dropped by over 30%.

Conclusion

In the complex waves of the cryptocurrency market, altcoins, as a diverse asset class outside of Bitcoin, are gradually becoming an important area for investors to chase trends and uncover potential. Through the Top 10 altcoin entry indicators introduced in this article, investors can gain a comprehensive understanding of market dynamics, from macro trends to micro individual coin selection, enabling precise identification of entry opportunities. No indicator is infallible; they are merely tools to assist in decision-making. When using these indicators, investors should combine fundamental market analysis, news factors, and other aspects for a comprehensive evaluation. Only then can they move steadily in the complex cryptocurrency market, preserving and growing their assets.