Here at The Token Post we want you to be at the top of your game in terms of news stories and of analysis. We’ll try to forecast where Bitcoin and other cryptocurrencies are heading which is pretty difficult. We will do a weekly technical analysis and will cover several cryptos such as Ethereum, Litecoin and Ripple. This is the first piece of this weekly column in which we’ll be able to create an understanding of what is the market trying to figure out with Bitcoin.
As most of you know, Bitcoin is the star of the Cryptocurrency arena. Whenever someone is talking about Cryptocurrencies Bitcoin always gets mentioned. This is for the good and lately, for the bad. Crypto-Enthusiasts have been pounded with several tough months of trading. Nearly 64% has been wiped off the market cap of Bitcoin since its all-time high back in December. Today it has fallen below $7,000 and some say it can still plunge more. I believe it won’t.
Some people panic whenever a market correction happens but what they don’t know is that markets move within cycles and right now the Crypto Market is experiencing a completely healthy correction. What most of amateur investors don’t realize is that Bitcoin is part of a market that moves at an extremely fast pace, making it seem more volatile and with violent movements all around the charts. This comparison that investors do comes from the traditional stock market which tends to be a more stable ground for investments, but right now it is also experiencing a huge correction. Hopefully this makes everyone see that this performance from Bitcoin is extremely normal and most importantly, very healthy.
Now let’s dive into the charts where we’ll cover Moving Averages, support and resistance. Don’t become intimidated by these terms as they’ll be explained in the best way possible.
Sellers gained steam starting the year, will it last?
1-month chart of Bitcoin’s price
Just by looking at this chart we can see how awful of a month Bitcoin has had. It has dropped all the way to a little more than half of its value in 30 days. But this chart only shows us the superficial flaws whereas if we add more tools we will see the bright future that withholds. Let’s start with moving averages, support and resistance.
Bitcoin is in a contracting falling wedge pattern. What does this mean?
YTD Bitcoin Chart
From now on we’ll focus on the year to date (YTD) chart. Now we have more to play with as we’ve added 3 exponential moving averages (26-day, 50-day and 200-day). What these averages do is help us to learn about where is the trend. The exponential moving average (EMA) is really helpful because it gives greater weight to recent prices and it speeds up direction. As you can see in the chart above, the 26-day crossed downwards the 50-day EMA and this is a signal that prices will continue to fall. It appears as if the 26-day EMA has moved to create resistance in the price and the 200-day EMA is serving as support.
Those two blue lines are support and resistance. Support is when price level falls to a certain price and bounces back up, it shows levels where buyers are willing to come back. The resistance is the ceiling of the price, it shows levels where buyers are no longer willing to enter a position. Bitcoin is stuck in a pattern called falling wedge. Essentially, this pattern forms when the market makes lower lows and lower highs with a contracting range. And as you can see, it has bounced off that pattern as of lately. The market works as a rubbing band, if you extend it enough it will bounce back, hard. We are nearing the end of this pattern and you can expect to see the price (it is actually happening now) bounce upwards to a price ranging from $8000 to $9500. After we end this pattern price will stabilize more.
It is important to understand at least the basics of technical analysis. This really helps us to get a clear picture of the trends in the market. Right now Bitcoin is being dumped until it becomes dehydrated, but that is a very good opportunity for buyers to enter a position as we have cleared the road off of sellers. Think of a market as a contracting machine, if you extend it too much it will bounce. I believe that the steam from sellers has ended or it’s nearing the end and price can bounce back to at least $9000 in the very short term, and as Bitcoin has taught us we can expect that volatility will be part of the equation.
Disclosure: This article is not an investment recommendation, each investor has its own strategies and before making any decisions in the market he/she should seek for qualified professional advice. When this article was written the author did have a position open in the asset mentioned.