Things in the trading market move fast, even faster in the crypto world. Factors that can affect the price like demand, government regulations, the launching of a new currency, among others. These can happen anytime because of the market operating 24/7. This is the reason why, as a crypto trader, you should be able to develop a keen eye needed to read the market to make a sound prediction about cryptocurrency.
This article can help you with your investment decisions. We will discuss techniques and types of analysis in trading and simplify the basics of how it works, but it will be up to you to deepen your expertise in how to predict crypto market.
Two States of Crypto Price
The main goal of predicting the crypto market is to anticipate what is happening or about to happen to the market. There will always be moments that decisions should be made in seconds. If you read it too late, you will be left behind. For example, if a currency’s price is about to drop, and you were able to see it, you can sell or trade your coins to avoid suffering significant losses. The two states of crypto price or the market situations are:
- The market is bullish if the price is prospering and expected to thrive for a time.
- On the contrary, the market is bearish if the price is plunging and expected to continue for a while.
You should also know when to hold your currencies, buy additional coins, and liquidate/sell your cryptos. Analyzing the market is the key to increase your profit. There are different categories of analysis to help you—technical, fundamental, and sentimental.
Categorizations of Analysis
- Technical analysis involves analyzing all historical technical data in the market, including price trends, opening and closing prices, trading volume, and other vital movements. The general idea is that price fluctuation follows specific trends and that history repeats itself. That’s why studying the characteristics of the last bearish market can help determine and anticipate the next. Analysts use these data to predict if the price will go up or down in the immediate future.
- Fundamental analysis looks at a larger picture. Instead of monitoring the crypto prices themselves, it watches over factors that lead to the market’s movements from a macro viewpoint. These other external factors include analysis of the economic or political occurrences like situations in the world economy, technology development in companies or currency management, company revenue, or even weather forecast (upcoming superstorm)—basically, any current events that might affect the market. It is crucial always to keep an open eye on these.
- Sentimental analysis, the consideration of the human factor. The philosophy behind this type of analysis is that traders consider certain key players’ opinions in the market. Meaning, that technical data may not be the whole story; sometimes, the price can be driven by public perceptions and expectations. These people could be journalists, influencers, investors, or even consumers around them. This type of analysis requires a time-honed skill of reading human sentiments and emotions.
Different Tools Used to Read Technical Data
These are common tools traders usually use in prediction about cryptocurrency: candlesticks, trendlines, and moving average. Graphs present different time frames that help traders how to predict crypto market. The most common ones are:
- 15-minute chart
- Hourly chart
- 4-hour chart
- Daily chart
The chart that traders use depends on their trading style. Some prefer to look at short term trends within the day. While others study long-term trends looking at trends within a week or so.
You probably saw this on different charts. These are the red and green rectangle on graphs that signify the cryptos movement over a specific time. Here’s how to read them:
- Red candlestick
- The red-filled rectangle represents a falling price.
- The upper limit of the rectangle shows the opening price, and the lower one is the closing price.
- Green candlestick
- The green-filled rectangle represents a rising price.
- The lower limit of the green-filled line shows the opening price, and the upper one is the opening price.
The end of the tail above each candlestick signifies the highest price during the trading session, and the other tail below is the lowest price during the session. Reading the shadow lines can help you learn how low the price dropped before it closes higher or how high it went before closing lower. There are patterns on these charts that can help you predict when the price is bound to go downwards or upwards, a basic on how to predict crypto market.
Another method is called trend lines. This method aims to disregard outliers in a crypto currency’s price to see an actual upward or downward trend. The lines combined with the analysis of candle shapes help uncover whether a trend is expected to continue or bound to end. This allows traders to make decisions for short-term strategy. Knowing about the trend lines is a step forward in knowing how to predict crypto market.
This strategy involves keeping track of typical prices of a digital currency over a specified period. It’s up to you if you want to look at a 7-day, 10-day, 30-day, or more time frame. This is calculated from the average of subsequent sets of data. For example, if you want to look at a 5-day average, you have to add each closing time price, then divide it by the number of days. Plot it for day 1. Then move to the next set. Get the average of day 2-6, then plot this for day 2, and so on. This line can help you validate other trends that you are observing. Find out more about crypto trading trends here!
Hopefully, we were able to help you establish the basics in your study on how to predict crypto market. What we discussed here are just the basics. There are different types of analysis, charts, and data used in the study of crypto trading. Knowing them is just the first step. But knowing when to use the right type of analysis is a skill you need to hone through experience. Staying alert on all news and current events are also crucial in anticipating major turns even before they appear on the charts. You can sharpen this skill and intuition as you continue to practice reading movements in the market. After lots of experience, only then can you say that you truly know how to predict crypto market.