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Bitcoin Price Prediction: Is Technical Analysis Applicable?

Technical analysis is a set of tools with which you can predict how the price of an asset will change in the future. Its schedule is considered to identify patterns in the form of figures, and by the volume of trading, you can determine who dominates the market: sellers or buyers.

For example, on December 19, trader and analyst Peter Brandt correctly predicted the beginning of an uptrend in the Bitcoin exchange rate. He drew his conclusion based on the fact that the price of the coin pushed off from the historical level of support formed in 2015.

However, the month before, Brandt made a different, less successful prediction. The analyst saw a “head and shoulders” reversal pattern on the Bitcoin chart, signaling a long-term decline in its value. This did not happen. Therefore, the expert was mistaken.

Technical Analysis Does Work Well

A majority of traders believe that technical analysis at the cryptocurrency market not only works but is also one of the main evaluation methods. This is because no one can determine the fundamental value of Bitcoin and other coins. 

Other analysts add that the reason for the effectiveness of technical analysis lies in its acceptance by the trading community. According to them, all market participants “read the same books” and use the same methods. According to the same laws, trading bots are arranged that operate on indicators and graphical models. Moreover, some analysts and traders tend to suggest that cryptocurrency is close to traditional assets. However, due to the underdeveloped market, coin prices can be manipulated by large players, which reduces the effectiveness of technical analysis.

Technical Analysis Does Work At All

A full-time cryptocurrency trader John Swift emphasized that the technical analysis is suitable for Bitcoin and top altcoins, but can fail with questionable projects tokens. Courses of unknown, illiquid coins are subject to manipulation, the expert said. “Technical analysis will be ineffective in new markets where there is no good history; on sh*tcoins, where they like to manipulate the price very much, ” Swift said.

Another crypto trader, Marcus Johnson, agreed with this position. He adds that technical analysis may fail due to the influence of external, unpredictable factors. The expert included news, negative, and positive statements of regulatory authorities to those. For example, the situation with Libra and TON and hacking exchanges with the theft of coins in large amounts.

Another factor Johnson called situations when large players resort to “anti-technical analysis”. They use the market’s expectations of an increase in the value of the cryptocurrency to sell a significant number of coins, and vice versa – to gain a position with fears of a collapse in the asset’s exchange rate, the expert said.

Advice for Crypto Traders

When using technical analysis, Swift advised traders to analyze the market simultaneously on short and long time frames and take into account the volume of asset trading. The expert also recommended monitoring his psychological state, because “it makes up more than 60% of success in this difficult craft”.

In addition, the trader noted the importance of compliance with risk management. Exchanges provide an opportunity to trade with significant leverage, the use of which can quickly reset a deposit, Swift emphasized.

Swift confirmed the importance of risk management, but to this, he added another piece of advice. The expert recommended that traders take into account the mood of the crowd and trade against their expectations.

Overall, technical analysis is suitable for the cryptocurrency market and is useful to use. However, the tool kit may not work with dubious, illiquid coins, fail due to the influence of news and manipulations by major players.