Bitcoin Graphics: Technical Analysis

Bitcoin Graphics: Technical Analysis


Technical analysis is one of the popular ways to determine the future price of Bitcoin. Many, looking at the price charts of the VTS, ask themselves: well, what can be disassembled here? In fact, everything is not so difficult, and we will teach you how to conduct such an analysis.

In the first part of this article, we will analyze the general characteristics of technical analysis, and in the rest – indicators and models that are relatively often used for BTC analysis.

And so, the purpose of technical analysis is to estimate the time at which an investor should make a decision to buy or sell an asset. Technical analysis is based on statistical analysis. To simplify its general characteristics a bit, we can say that the models used assume that the asset price follows a repeating pattern.

These models can be in the form of geometric shapes that can be read on a diagram, or in the form of calculations based on statistical indicators. Technical analysis assumes that prices are subject to trends and that history repeats itself, so that future forecasts can be derived from historical data.

If you log on to then you will see that there is a whole section dedicated to the historical data of the crypto asset.

The difference from fundamental analysis is that technical analysis does not take into account macroeconomic factors. The data used to predict the future estimate is read directly from the graph. Although technical analysis differs significantly from fundamental analysis, these two methods, of course, can be applied simultaneously. Fundamental analysis answers the question of which asset is worth buying or selling, and technical analysis explains when to do it.

Bitcoin – technical analysis of cryptocurrencies

Bitcoin is a cryptocurrency that almost everyone has heard about. It is important to note that it was introduced only in 2009. This means that the history of the most popular cryptocurrency is still quite short.

The basic principle of operation is a decentralized cryptocurrency. In standard fiat currencies, the functioning of the currency is based on trust in the central issuer. In the case of Bitcoin, the situation is completely different, and here the security provided by a peer-to-peer network topology is at the heart. The network uses Blockchain technology to ensure the security of transactions. BTC is not affiliated with banks or governments.

People who own BTC have their own cryptographic key with which they can receive funds. Transactions can be performed using software on a computer, smartphone or on a cold hardware wallet.

A very characteristic feature of BTC is the setting of a limit on the supply of BTC units to 21 million coins, which has a strong deflationary pressure. Therefore, experts believe that this is a cryptocurrency that is not subject to inflation.

BTC Exchange Rate Analysis – a combination of technical and fundamental analysis

In the face of strong deflationary pressures, many people believe that Bitcoin is a way to preserve the value of money over time. Most people interested in it think of it as an investment. It is worth noting that this is an asset that is extremely vulnerable to a speculative bubble, especially since the popularity of BTC continues to grow.

As a result, many investors are wondering when to enter and exit their investments using different valuation methods. BTC analysis is an exciting game, as the price of this cryptocurrency is constantly fluctuating. Of course, fluctuations in valuation are observed for all other financial instruments, but it is cryptocurrencies that are characterized by particularly large fluctuations.

Several years of the existence of BTC and other cryptocurrencies have clearly shown that the dynamics of the market is much more lively and turbulent than what is observed in the stock market or forex, which, of course, clearly affects the risk of investment.

What signals should an investor follow

Sometimes traders try to predict the right time to enter and exit an investment based on macroeconomic events and incoming industry news. Below are a few examples that probably have not escaped everyone who constantly monitors the ever-changing BTC exchange rate.

  • Buying BTC from institutions or large and recognizable corporations;
  • Information about the use of BTC to pay for goods and services (for example, information about the future implementation of cryptocurrency support in the PayPal payment processor);
  • For example, the interest in bitcoin from technology companies in the financial technology sector;
  • Information about economic stimulus packages (for example, Joe Biden signing a $1.9 trillion bill that will be used for a coronavirus relief package);
  • The occurrence of various events outside the financial world that affect financial markets (for example, the COVID-19 epidemic);
  • Buying BTC from individuals who are recognizable personalities in the world of finance or entrepreneurship. An example of this is Elon Musk, who managed to influence the growth of the BTC exchange rate with the help of small pieces of information presented on Twitter;
  • Confidence in currency inflation data;
  • Data on the speed of money circulation;
  • Data on the speed of money printing;
  • Growth or decline of cryptocurrency portfolios. For example, in 2017, during the BTC boom, there was a noticeable influx of new portfolios;
  • Other different types of macroeconomic data and news from the world of finance and technology …

The above are just a few examples of what BTC investors have been interested in in recent years. However, this is not the main thing that interests those who are engaged in technical analysis. Technical analysis is a more mathematical approach to asset valuation.

Although most of the above applies to the long-term investment approach, technical analysis uses tools that can be useful for both short-term and long-term strategies.

Of course, the valuation of BTC and other cryptocurrencies should not always correlate with historical data, so it seems that the only reasonable solution is to skillfully combine the information coming from the market with technical analysis. In other words, the valuation of a cryptocurrency can be confidently based on a fundamental and technical assessment. However, not every cryptocurrency lover uses a combination of these two methods.

Basic indicators for technical analysis of the cryptocurrency market

BTC can move in three directions – rise, fall or hold. If the trend is upward, we call it a bull market, and if it is downward, we call it a bear market. Some people follow the trend and thus make decisions about buying and selling.

It is important to remember that BTC and other cryptocurrencies are characterized by the fact that there are many adjustments and withdrawals within the trend, so many newcomers may think that the trend has been broken, which is a false observation.

An uptrend or downtrend can contain up to a dozen smaller bounces. For investors who have already spent some time analyzing the BTC price, this is very obvious, but for novice traders, small fluctuations within a larger trend can become a big obstacle to keeping cool and maintaining a biased opinion to comply with the investment strategy.

  • Moving Average

The moving average is a commonly used indicator to predict the price of BTC. The moving average principle allows you to reject short-term price fluctuations so that the result is not distorted, which is inherent in cryptocurrencies.

Of course, the moving average can be calculated for almost any time period. However, it has become a good practice to calculate an average of 50, 100 or 200 days. Of course, the moving average will not be a good indicator if it is analyzed for too short a period of time.

When checking such indicators for BTC, you may come across an exponential moving average, which gives more weight to new data on the chart. Thus, the exponential moving average (EMA) is more sensitive to new market reports than the standard, so-called simple moving average (SMA).

In addition, you will find many other options for moving averages. These include the Weighted Moving Average (WMA), or the Hull Moving Average (HMA).

Moving averages are considered a good tool for assessing possible price dynamics and analyzing trends. Please note that the moving average is a lagging indicator, and is not recommended for predicting future movements.

This is a measure used to confirm a visible trend. It is important to know that averages are not an effective tool when the market is consolidating (sideways trend).

How can moving averages be interpreted? The average values plotted on the graph are represented by irregularly shaped lines. Typically, a moving average is used to overlay a short-term average and a long-term average on a chart.

If the short-term average crosses the long-term average in an upward movement (this is called the golden cross), it indicates a bullish trend. If the opposite is true, then the sword (Cross of Death) is trending.

The basis of moving average analysis is to check how far the calculated average is from the current price. If the price differs significantly from the calculated average, we can expect that the price will move in the direction of the average (up or down).

What else do you need to know about moving averages? When shorter waves of the short-term average are visible on the chart, it means that a correction can be expected. The flatter the moving average, the weaker the trend.

Support and resistance points

When we look for forecasts regarding the future price movement on the cryptocurrency chart, we very often see support and resistance points.

A support point is a point below the current price. This is the point indicating the probability of a price increase. On the other hand, a resistance point is a place that is above the current estimate and is an obstacle for the price to rise above this point.

Both of these types are determined by analyzing past events. Interestingly, there is no single method for determining the area of support or resistance. There are several methods based on different data.

The main method is that the resistance point is located where the number of sales orders exceeds the number of buyers’ orders, which reduces the price. In this case, the demand for the asset exceeds the supply.

In addition, data that is sometimes taken into account when determining support and resistance points include:

  • The price level that was previously a turning point (the place of the trend reversal based on historical data). Points of this type are sometimes called swings.
  • The moment when there is an unusually large influx of buyers or sellers.
  • Psychological barriers that usually arise when the full price is reached, for example, $20,000. Some traders may consciously or subconsciously pay attention to integers and thus turn full amounts into support or resistance points. The opinion of long-term leaders is of great importance for psychological barriers.

If the currency returns to a certain support or resistance point several times, this point becomes stronger and more noticeable to analysts. It should be noted that not all points are expressed in the same way, so the division into lighter and stronger points is quite natural.

When determining support points, of course, it is necessary to determine for which time range we want to determine support and resistance points. In the case of BTC, traders usually look for points on multi-month or multi-year charts.

The definition of points is a step towards determining the lines and levels of support and resistance. Several points on the chart, which can be connected by a horizontal line, define a support zone or a resistance zone.

The end of the first part.