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How to Predict the Crypto Market

Sep 6, 2023
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Bitcoin price movement  (Source: Tradingiew)

Trading is, without a doubt, one of the most popular ways to make a profit in the cryptocurrency market today. Some say it is the “hardest way to make easy money.” 

Yes, the market prints money to people who have mastered it. However, it is necessary to have certain technical knowledge before you can make the market act this way. Cryptocurrency market prices are very volatile. Therefore, filling the shoes of a trader requires market experience and sound knowledge of price movement. 

This guide is introductory to how to predict price movement in the cryptocurrency market.

How to Predict Bitcoin Market and Other Cryptocurrency

There are two main methods that traders use when analyzing the forex market. technical analysis and fundamental analysis.

Technical Analysis

Technical analysis is the process of analyzing present market conditions to predict future movements. It focuses on using a price chart to identify trends, support and resistance, and momentum to help traders enter and exit trades that are likely to gain or incur smaller losses.

Technical Alalysysis works on the premise that prices move in trends, and these movements often follow established patterns that can be partially attributed to market psychology. This behavioral assumption is based on the belief that traders will always act in the same predictable way when presented with the same/similar market condition. 

Technical analysis does not attempt to measure the value of a cryptocurrency asset. It employs known mathematical indicators and chart patterns to predict the likelihood of future movement.

Fundamental Analysis

Unlike technical analysis, fundamental analysis does not use charts or indicators but instead uses internal and external information that can determine the value of a cryptocurrency. It involves the study of the fundamentals of the asset, including news, events, its monetary policy, its community, or even its relationship with the traditional economic system.

The goal of fundamental analysis is to determine if an investment is truly valuable or if there are better opportunities in the market. Instead of using statistical data to enter or exit a position, it uses historical and short-term information about the asset to calculate price movements based on financial values, data from public networks, and macroeconomic conditions. All this helps to assess the financial risk of an investment asset knowing the real value of the asset and its long-term behavior.

Best Technical Analysis Method to Predict the Crypto Market

50-day- Moving average (source: Tradingview)

Moving averages are one of the most used technical indicators on cryptocurrency price charts. They work by filtering out the “noise” of random short-term price fluctuations and providing a great indication for trend tracking.

There are two types of moving averages used in crypto charts: simple and exponential.

  • SMA – The Simple Moving Average uses the arithmetic average of a given set of prices over a defined number of weeks/days/hours.
  • EMA – The Exponential Moving Average uses a weighted average, giving greater importance to the most recent days, making it more sensitive to further price fluctuations.

Moving averages are often used together to provide a better indication of when a trend will reverse. The number of weeks, days, or hours used to calculate the moving average also differs. 

Two of the most commonly used moving averages for cryptocurrency charts are the 50-day and 200-day moving averages to identify longer-term trending patterns and areas of support and resistance. Adding these two indicators to a Bitcoin price chart can help identify when prices are at the upper or lower bounds of their potential moves and when a major trend reversal is about to happen. 

When these two moving average lines cross, it is an important signal for future price movements and trend changes, and they have been aptly named as follows:

  • Golden Cross – occurs when the 50-day moving average (which is faster moving) crosses above the 200-day moving average (which is more legend). This is considered an uptrend reversal pattern.
  • Death Cross - occurs when the fastest 50-day average passes below the slowest 200-day average. Bearish trend reversal pattern.

Support and Resistance

Support and resistance (source: Tradingview)

Support and resistance are essential concepts when dealing with Bitcoin and other cryptocurrency charts These are the most used styles of trading around the globe.

Price moves in different directions every time and over time. Areas that push price movement back downward are referred to as areas of resistance. On the other hand, areas that cause prices to bounce and go bullish are known as support levels.

When prices repeatedly return to the same level without having a spike above it, resistance is said to be strong. The opposite happens at a support level, when prices quickly fall to the same level, but do not fall beyond it.

A “break in structure” happens when prices leave these zones. Once this happens, the price will find a new resistance level and a new support level. Knowing how to identify these areas is important to help you make well-informed buying and selling decisions in the cryptocurrency market. 

Market Chart Patterns

Chart Patterns: Tradingspine

Patterns that often appear on cryptocurrency charts lead to more predictable future price movements. These chart formations can be used to identify trend reversals, trend continuations, and bullish or bearish momentum.

Some of the most commonly recognized chart patterns for Bitcoin and cryptocurrencies are listed below.

  • Reversal patterns: Shoulder, head, and shoulder, reversed shoulder, head, and shoulder, Cup and Handle, Double top/bottom, up or down wedge.
  • Continuation Patterns: Rectangles, Flags, Rising and Falling Wedge.
  • Bilateral patterns: Symmetrical triangles, ascending or descending triangles.

A two-sided chart pattern can result in a price breakout in either direction. Many of the chart patterns used to trade Forex are also applicable to cryptocurrencies.

There are other ways to identify whether a trend is about to reverse or will continue.

  • Higher High, Higher Low: This is a bullish pattern that indicates that the price is still rising and the uptrend is intact. Prices keep breaking previous highs and the pullbacks are not as low as the previous ones.
  • Lower High, Lower Low: This is a  bearish pattern that indicates that the price is  falling and the downtrend is intact. Prices cannot break previous highs, and new lows are formed with each pullback.

Chart patterns are very important price behaviors to look out for when trading Bitcoin and cryptocurrencies as they provide a bigger picture regarding the overall trend.

Cryptocurrency Market Sentiment: Bulls vs. Bears

Bitcoin and cryptocurrency markets in general move in three directions; up, down, and sideways. A market that is rising is considered bullish, while a market that is falling is considered bearish. A sideways market is called a ranging market. The most common saying when it comes to the analysis of crypto charts is: “The trend is your friend”

Price direction is much more likely to follow the current trend than to reverse and move in an opposite trend. Market sentiment follows this too, as long-term trends don't change very often. Bitcoin bull and bear markets can last for a few years before finally reversing.

Within a trend, there may be several high spikes, corrections, or pullbacks where it looks like the trend will reverse, only to resume the original trend after a certain period. After all, prices don't move in a straight line. Using cryptocurrency price analysis and chart patterns can reveal these possible changes in a trend over different times.


Can You Use Crypto Chart to Identify Trends and Opportunities?

Charts are perfect for identifying trends in the price of a crypto asset. It is important to keep in mind that even cryptocurrencies have repeating market cycles that allow you to anticipate possible price movements in the future. The chart gives an account of these cycles or behavior patterns, as well as the existence of trends.

Who decides crypto prices?

Cryptocurrencies are tradable asset just like stocks and their price is determined by how much interest the market participants have in buying them – this is called demand – and how much is available to be bought – this is supply. The relationship between these two determines the price of an asset.