Bitcoin 200 Week Moving Average Heatmap

What is the 200 Week Moving Average Heatmap?

The 200 Week Moving Average Heatmap is a visual representation of Bitcoin's price action relative to its 200 week moving average. The chart displays Bitcoin's price with colored dots that change depending on how much the 200 week moving average has increased or decreased based on the price action over the previous four weeks.

How is the 200 Week Moving Average Heatmap Calculated?

The heatmap is created by first calculating Bitcoin's 200 week moving average. This is done by averaging the closing prices of Bitcoin over the last 200 weeks (1400 days). The key element of the heatmap is how the moving average changes over time, particularly how much it increases or decreases based on the most recent four weeks of price action.

The colored dots on the heatmap indicate the magnitude of the change:

Red or Dark Orange Dots: These appear when the 200 week moving average has increased substantially, typically by 14% to 16%, indicating a strong upward trend in the market.

Yellow to Green Dots: These colors indicate a moderate increase, usually between 8% to 12%.

Blue to Purple Dots: These colors show a minimal increase or even a flat 200 week moving average, suggesting a potential bottom in the market.

How Does the 200 Week Moving Average Heatmap Work?

The heatmap's functionality lies in its ability to visualize the momentum of Bitcoin's price relative to its long-term average. Here's how it works:

Market Tops: When Bitcoin's price is far above the 200 week moving average and the dots are red or dark orange, it suggests that the market is in a highly overbought condition. Historically, these periods have been good opportunities for investors to take profits, as they often coincide with market tops.

Market Bottoms: Conversely, when Bitcoin's price is close to or below the 200 week moving average and the dots are blue or purple, it indicates that the market is in an oversold condition. Historically, these periods have been favorable for accumulation, as they often coincide with market bottoms.

Historical Performance of the 200 Week Moving Average Heatmap

The 200 Week Moving Average Heatmap has been effective in highlighting significant Bitcoin market cycles:

2013 Cycle: During the double peak in 2013, the heatmap displayed dark red dots, signaling that Bitcoin's price was significantly above the 200 week moving average. Investors who took profits during these periods avoided substantial drawdowns.

2016-2017 Cycle: As Bitcoin's price surged from a few hundred dollars to nearly $20,000, the heatmap transitioned from yellow to red, indicating a strong upward trend. Investors who sold during this period were able to lock in significant gains before the subsequent bear market.

2018 Bear Market: After the 2017 peak, Bitcoin's price plummeted, and the heatmap showed dark blue and purple dots. Investors who accumulated during these periods were rewarded when the market eventually rebounded.

2020 COVID-19 Crash: During the market crash in March 2020, the heatmap again showed deep blue and purple dots, signaling an opportunity for accumulation. The subsequent rally to new all-time highs validated the effectiveness of this strategy.