“All red”. Should we start worrying about Bitcoin price drops? When we should do this exactly?
How to start understanding stock charts?
Understanding cryptographic charts is an important skill both for direct trading and predicting things that will happen in the long and short term.
Cryptocurrency market analysis starts with an analysis of the underlying market trend. There are three types of trends.
- Long-term is a major trend that lasts at least a year. It can be bullish or bearish.
- Intermediate can last from ten days to three months. It typically retraces 33% to 66% of the primary price change since the previous average swing or the start of the main move.
- Short swing is about changes that are related to the current market speculation, from some hours to 1 month.
Then we go deeper to analyze the phases of market trends.
The accumulation phase is the period when smart investors start buying or selling an asset contrary to the market’s situation. During this phase, the price of the asset does not change much because there are a few of these investors.
The public participation phase starts after the point when the market finds these smart investors. More and more people are following these trends until rampant speculation begins.
The excess phase goes right after huge speculation due to the limited supply of an asset. Its price begins to recover when smart investors begin to distribute their assets to the market. As a result, prices begin to drop along with volume. For example, the current fall of Bitcoin price isn’t a long-term trend, and it is very similar to the distribution of assets.
When analyzing, it is important to understand that trends are most often confirmed by volume. Volume should increase with price in an uptrend as an example. During a downtrend, volume decreases with a price decrease.
We have figured out the general analysis of trends and phases. Let’s get to know more about technical analysis right now.
Technical analysis is a tool to predict the future price movement of a currency pair, cryptocurrency pair, or stock. It can be creative and dynamic, which will help you get a very deep understanding of the market.
One of the most popular and well-known types of charts for technical analysis is the Japanese candlestick chart:
Here’s a line of red and green columns one after the other. Analysts call them candlesticks. Each of them shows the movement of the asset’s price over a certain time interval including the opening price, the minimum and maximum prices for a given period, and the closing price.
- Each candlestick has a body and shadows up and down to the body.
- The body shows the difference between the opening and closing prices.
- Shadows show how high or how low the opening and closing prices went.
- For green candlesticks, the upper shadow is the close and the lower shadow is open. Vice versa for the red ones.
The beauty of candlesticks is the ability to show clearly where the market has turned. It can help you to identify various patterns to predict market movements.
Let’s try to understand how to analyze data. Here’s an example of the bullish engulfing pattern below.
The first candlestick is bearish and the second is bullish. The body of the second candlestick completely overlaps and closes the first candlestick. Therefore, the first candlestick is red, because in comparison with the second candlestick it got the reduced-price status.
What does it mean?
- On a bearish (red) candlestick, everything is under the control of sellers.
- On the second candlestick (green), the bulls retaliated with a strong rally and completely suppressed the bears.
- This is a great indicator because the bulls are getting stronger momentum.
When does the fall in bitcoin remain volatile, and not the fall of the cryptocurrency in general?
In technical analysis, support and resistance are predefined price levels of an asset with the chance to reverse the trend. These levels have multiple price touches without a level breakout. Traders often buy on support and sell on resistance.
The reason for fixing any possible support level is a historically repeated trend. That is, at several different points for different reasons and in different circumstances, the market went down to a certain price level, and then rose again. So, for example, for bitcoin over the past 1.5 years, the price zone of support can be pointed at the price of $ 20,000.
Let’s take a look at the whole journey from this point in mind.
Bitcoin had a price tag of over $ 60,000 in February and April 2021 due to events involving Tesla and Coinbase, respectively. Mass interest was in turn fueled by Tesla’s announcement of the acquisition of a $ 1.5 billion digital coin, followed by the IPO of the largest US cryptocurrency exchange.
Then the bitcoin rate began to correct with a downtrend. This peaked after speculation about government regulation.
Another reason for the decline in costs was the power outage in the Xinjiang region of China. This unexpected development led to a decrease in the number of bitcoins being mined and scared off investors. Then a massive sale of assets began.
Is Bitcoin Price Evolution a Potential Bubble?
Asset pricing is determined considering all market factors, including news feeds. The cryptocurrency market is no exception. Price movements are not entirely random. They follow trends more often. This can be both long-term and short-term change. Market analysts prefer to focus on the price of the coin rather than each variable that causes its price to change.
A huge rise in the price of an asset is always followed by a fall. The biggest factor in price movement is emotion. Fear, greed, optimism, or pessimism are always based close to the background of various events and news.
You can think of price charts or technical analysis like infographics. But when the price falls to the support level, then greed or optimism manifests itself. This is the moment when bull traders buy an asset to increase their position. Meanwhile, short traders will buy more to cover losses.
There are rumors that 2% of the largest Bitcoin investors own 92% of the assets. On top of that, most of the people using cryptocurrency services around the world are retail clients, not institutional investors. It is difficult to accurately predict growth or decline. This is especially difficult when the whale starts trading in the market and any of its actions have a strong impact on the situation.