It’s about time you start predicting some prices!
Well, are you investing in cryptocurrency? Do you plan to invest in cryptocurrency? Most likely, since you’re here. Then you must be asking yourself how do you predict a coin’s price and if it’s still worth investing in them or holding your investment.
There are many people telling you one way, while others telling you the other way. To some, you should listen, to some, maybe not. Can’t tell you that you should listen to me but I’m confident I can teach you a thing or two.
Instead, I’m going to let you figure out on your own where the price of your crypto assets might go in the future. Don’t worry, I’m going to help you because you seem like a nice person and I like nice people so let’s talk about what methods you should use to try and predict a cryptocurrency’s price.
In order for you to to make an almost reliable price prediction of your coin, you first have to understand how the market works, what moves it, who can move it and everything there is to know about your assets. There are several tools that traders use for this kind of purposes.
You need to look at it from a technical point of view and a fundamental one. Once you’ve got a good understanding of both of them, combine them and make your short term and long term price predictions and act on them, if you’re confident enough.
So let’s get to it!
Understanding the price
The first tool which will help you to predict the crypto asset price is the actual price itself. The current price is a reflection of investors’ fears, expectations and demand for the asset, past, present and future. Everything we know about the asset at the moment is reflected in its current price.
So before you try to understand where the price will go, understand why the asset is currently trading at this price. You’ll learn what the market is expecting, why traders are buying or selling and what drives them to keep trading the asset.
Once you understand the price, how it got there and what it hints about the future, move on to the next tool.
Understanding the technical
A lot of cryptocurrencies are anonymous. Some people brag about having cryptos but others shy away from the spotlight. But traders need a way to communicate with each other, so they have an idea when to buy and when to sell.
Sure, you can speak with your buddy Dan, who owns 0.5 BTC or join some crypto forums and get a few ideas and suggestions, but you need to communicate with everybody who owns the asset you’re investing in.
1) Follow the chart.
The best way to communicate with everybody is the price chart, showing you historical data from the beginning of its trading days. This is called technical analysis and it basically provides a wide array of tools which you can use to identify trends in the price of an asset. You then used this data to make an informed and smart trade.
It’s not an exact science since market sentiment can change in a heartbeat so just because a few technical indicators point to the same outcome it doesn’t necessarily mean it will get there.
Let’s go over the most important technical indicators you should take into consideration when doing technical analysis.
2) Trend lines
A trend line is a straight line drawn between price pivot points. It needs to connect a minimum of three pivot points to be considered a valid trend line. They are used to determine entry and exit points in your trades.
Depending on your trading strategy, use trend lines on price charts displaying the appropriate price interval, for example, short-term traders, on charts showing the price of the asset every 1 minute.
Trend lines can be:
- Uptrend lines
In order for the trendline to be a positive one, three low points have to connect, each one being higher than the previous low.
The uptrend acts as a support and it is a psychological level which shows the determination on behalf of the buyers, so when the price is touching the support, buyers come in and lift the price of the asset up. Of course, unfortunate events can scare the buyers off and make the price break the support line.
- Downtrend lines
The trendline is negative when you are connecting three high points, each being lower than the previous high. It acts as the resistance and then the price is touching the resistance line, sellers cash in their profits, taking the price for a short trip to the floor below.
A trader must be quick in identifying changes in trends and act accordingly, so keep your eyes on the price chart.
Note: Support and resistance lines can also be flat. Once the price breaks the resistance, it becomes the support, and vice versa.
3) Moving Average
It’s a widely used indicator which helps traders cast aside from their technical analysis random price fluctuations. It basically shows the average price of an asset over a certain number of days.
The most common time periods that traders use when calculating moving averages are 15, 20, 30, 50, 100 and 200 days.
Depending on your strategy, you will choose what moving average you use. It’s best to test all of them to see which one works best for you.
Keep in mind that the moving average is an indicator which shows past data and is used to trail the price action of an asset. Significant moves in the market occur before the moving average indicator can give you a buy or sell signal, so do not rely on this indicator alone.
4) Bollinger Bands
It’s an indicator which measures volatility. Bollinger Bands are price channels (bands) plotted above and below a moving average. The bands are based on the volatility of the price so they widen as volatility is increasing and contract as it decreases.
When prices are exceeding the upper band, the asset is considered to be overbought and traders come in and sell it to get it back in the band.
Alternatively, when the price is exceeding the lower band, the asset is considered to be oversold, which will trigger a buy signal. Traders will always try to get the price back within the bands.
Bollinger Bands is one of the most popular and highly used technical indicators used in technical analysis. See an example below:
5) Trading Volume
The Volume measures how much of the asset has been traded in a certain period of time. It’s a simple yet powerful tool which not many traders use. Strong trends are accompanied by a high trading volume while weak trends are accompanied by low trading volume.
If the price of an asset is increasing while the volume is decreasing, it usually points out lack of interest from the market and can signal a trend reversal.
When the price is increasing or decreasing on a low trading volume, that’s not a trading signal, so always check to see big volumes accompanying price movements. That’s when you know something has fundamentally changed in the asset.
Yeah, that’s enough technical indicators for today. Great job, you now know some technical analysis. Be sure to put it to practice each day on multiple assets’ charts until you learn to issue some valid trading signals.
Now let’s get to the fundamental analysis and a learn to be an even better signal issuer, because relying on technical analysis alone is a no-no.
Understanding the fundamental
Fundamental analysis is what traders use to analyze an asset in order to measure its intrinsic value. In short, they try to find out the real value of the asset in order to make a price prediction and calculate the risk taken.
This is done by analyzing everything there is to know about the asset, from liabilities to earnings, the health of the asset, competitors and markets, the team behind the asset.
But we are talking about performing fundamental analysis on a rather new asset of which there’s a low track record of accurate fundamental analysis performed on. It’s not the stock of a company that is meant to generate revenue, but rather an asset which depends on the participation of users.
So where do you get helpful information for your fundamental analysis?
1) Coin’s white paper
If you haven’t already (lol), read your cryptocurrency’s white paper, it will make you fully understand the asset that you’re analyzing. It is a little bit too technical sometimes but it lays out a detailed description of what the coin really is about, its future plans and the mechanics behind it, literally the fundamentals behind the coin.
It’s imperative that you read it in order to make your crypto’s price prediction.
2) The community
From the coin’s Telegram / Discord / Slack channel, to Reddit, to Twitter, to bitcointalk and all the other forums, these are all great sources of better-informed people to whom you can look for help if you got questions about your coin, share opinions and find out new intel about the coin.
Being involved in the community helps you better understand the market’s sentiment and if you want to make some price predictions then you a have a better chance by being active on these websites.
3) Follow famous people who talk about your coin
No doubt the crypto market is volatile and can be manipulated. People will talk great deals about some coins, baiting others into buying them, just so they can profit from the price increase. Many noob investors will just follow other people’s movements when buying coins, without really knowing why they think the price will increase.
That doesn’t mean that you shouldn’t listen to some recommendations from certain people, people who have a track record of predicting some market movements and which have gained quite a bit of popularity in the crypto world because of it.
People will blindly follow these personalities if they think there’s a chance of profit, because of course they do, everybody wants profit with the least amount of work and research possible.
Though, you should not rely on one opinion alone so here’s a list of people you should follow if you wanna stay up to date with experts’ opinion on cryptocurrencies.
4) Read the news
Don’t be a mindless hodler, watch out for your investment. Be up to date with everything that’s happening with your coins, it’s development, the team behind them, the community.
See who is ok with your coin, who’s not, if it’s causing any issues and be quick to act if you think a piece of news will move your coin.
For example: when, at the beginning of the year, there was a lot of uncertainty in the crypto world due to hints that South Korea might bring a complete ban on cryptocurrency exchanges, investors’ expectations was that the price of crypto assets will drill into the ground so we saw some heavy selling going on which had us witness the first large-scale correction of cryptocurrencies.
One single piece of news could have it plummet to the ground. There needs to be a continued demand for your cryptos and bad news will definitely decrease that demand so watch the news to know when you should get out of your investment.
Use this news aggregator which gathers news from all around the web and be almost the first to find out about important news.
5) Come up with your own opinion.
Now that you know all these pieces of information about your coin and how you should look at it, it’s time for you to make up your own opinion about it.
Given the technical and fundamental analysis, everybody else’s opinion and all the price predictions, what do you think is going to happen, where do you see the coin going?
It’s important to have your own opinion in addition to the info you have and not just blindly follow information. Compare your prediction with others, see if you can reach a consensus. The more you do this, the more you’ll learn to do more accurate predictions.
You don’t have to follow the market’s sentiment, you don’t have to follow some guy on the internet who says bitcoin will increase. Be that guy who knows that bitcoin will increase and why it will increase.
You only get to be that guy if you practice your technical and fundamental analysis and your opinion generating skills. Combine all three of them and you’ll have better chances at accurately predicting your cryptocurrencies prices.
If you have done all of these, congratulations, you are now a more experienced investor!
Bonus Time – Where do I see cryptos in the future.
There’s been a lot of discussions about institutional investors coming in the crypto world. One example is Fidelity Investments Inc, which is a multinational financial services corporation and the 4th largest asset manager with $2.4 trillion in assets.
They are hiring experts in Blockchain which should mean they want to make cryptocurrencies a part of their platform and to allow it’s clients to invest in them. If that happens we are sure to see a boom once again, this time, maybe even bigger than the one in the previous year.
This will be judgment day for some cryptos as the investors will select only a handful of reliable coins to invest their money into. So the most important and promising ones will lift up leaving the shillcoins on the floor below and that is something I’m looking forward to.
Bitcoin’s popularity should make it at least double its price (current price: $7654) once the institutional money comes in, but coins with better applications, like Ethereum, should see an even bigger increase.
Stay tuned and we shall see!
You should not consider any information you read on this website as investment advice. These are all just guidelines that I have been following which got me decent results in my trades. I cannot guarantee you that you will succeed by following what was said in the article. Follow these guidelines with caution and always seek expert counsel if you’re serious about investing.