Bitcoin traders use a variety of tools to try to determine which direction the BTC market is likely to go next. These instruments can be roughly divided into indicators and chart patterns. When trying to predict the Bitcoin price, traders also try to identify important support and resistance levels, which can indicate when a downtrend is likely to slow down and when an uptrend is likely to stop.
Bitcoin Price Prediction Indicators
Moving averages are one of the most popular Bitcoin price prediction tools. As the name suggests, a moving average provides the average closing price for BTC over a selected time frame, which is divided into a number of periods of the same length. For example, a 12-day simple moving average for BTC is a sum of BTC’s closing prices over the past 12 days which is then divided by 12.
In addition to the simple moving average (SMA), traders also use another type of moving average called the exponential moving average (EMA). The EMA gives more weight to more recent prices, and therefore reacts more quickly to recent price action.
50-day, 100-day and 200-day moving averages are some of the most used indicators in the crypto market to identify important resistance and support levels. If the BTC price moves above any of these averages, it is generally seen as a bullish sign for Bitcoin. Conversely, a drop below a key moving average is usually a sign of weakness in the BTC market.
Traders also like to use the RSI and Fibonacci retracement level indicators to try to determine the future direction of the BTC price.
How to Read Bitcoin Charts and Predict Price Movements?
Most traders use candlestick charts as they provide more information than a simple line chart. Traders can view candlesticks that represent the price action of Bitcoin with different granularity – for example, you can choose a 5-minute candlestick chart for extremely short-term price action or choose a weekly candlestick chart to identify long-term trends. 1-hour, 4-hour and 1-day candlestick charts are some of the most popular.
Let’s use a 1-hour candlestick chart as an example of how this type of price chart gives us information about opening and closing prices. The chart is divided into “candles” that give us information about Bitcoin’s price action in 1-hour chunks. Each candlestick will display BTC’s opening price, closing price, as well as the highest and lowest prices that Bitcoin has reached within the 1-hour period.
It is also important to pay attention to the color of the candle – a green candle means that the closing price was higher than the opening price, while a red candle tells us the opposite. Some charts will use hollow and filled candlestick bodies instead of colors to represent the same thing.
What Affects the Price of Bitcoin?
Just like with any other asset, the price action of Bitcoin is driven by supply and demand. These dynamics can be affected by fundamental events such as block reward halvings, hard forks or new protocol updates. Regulations, adoption by companies and governments, cryptocurrency exchange hacks and other real events can also affect the price of BTC. The market capitalization of Bitcoin can change significantly in a short period of time.
When trying to make a Bitcoin forecast, many traders also try to monitor the activity of BTC “whales”, which are entities and individuals who control large amounts of BTC. Since the Bitcoin market is relatively small compared to traditional markets, “whales” can single-handedly have a large influence on Bitcoin’s price movements.
Bullish and bearish price prediction patterns
Some traders try to identify candlestick patterns when making cryptocurrency price predictions to try to get an edge over the competition. Some candlestick formations are seen as tending to predict bullish price action, while others are considered bearish.
Here are some of the most followed bullish candlestick patterns:
Here are some common bearish candlestick patterns:
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