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As bitcoin (BTC-USD) breaks above $ 40,000, investors are laser-focused on price movements, trying to guess the next big move. A former trader on the New York Stock Exchange demonstrates how well technical analysis is suited for analyzing and forecasting price movements in cryptocurrencies.
During a recent Yahoo Finance Plus webinar, Capital2Markets President Keith Bliss told attendees that bitcoin and other cryptocurrencies don’t lend themselves to traditional fundamental analysis because they don’t have balance sheets and financial data that can be modeled. However, they feature the same graphical patterns as their stock market cousins, meaning that investors can use technical analysis to help predict price movements.
“[W]With a Procter & Gamble (PG) or an Exxon Mobil (XOM) … you can see what the discounted cash flow will be over the next 12 months, then determine what the fair price is for that equity. Bitcoin does not have this. It is investor sentiment and catalysts apart from any kind of fundamental calculation within the asset. That’s why it’s quite fun to plot a graph, ”he said.
Bliss uses a variety of technical tools, but starts with the simplicity of trend lines, which connect price extremes over time. Markets can move up, down, or sideways, and trend lines help determine not only direction, but inflection points as well.
In the chart above, the red trendline runs parallel to the blue line and captures the highs of January and February. Once these two contact points were known, the parallel blue line was set at the January minimum. After peaking in February, the market moved lower and almost touched the blue line, which was a favorable entry point as were the March and April lows. Investors can exploit these trends for entries and exits.
But trends do eventually break down, as was the case with bitcoin in April when it finally crossed the blue line. This was a warning that market participants were receding optimism and were not as interested in raising prices as in previous months.
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“[Y]You can see that it broke the bracket quite violently [in April] when it started to pull back based on investor sentiment. Sometimes when this happens with other asset classes as well, when you have a consolidation at a certain price and the market is trying to decide what is going on and you are waiting for that catalyst to either burst it or to bring it back below the support line, ”Bliss said.
After the initial price fell to around $ 47,000 (purple line), bitcoin climbed to nearly $ 60,000 before running out of steam and falling back to potential support at $ 47,000. When the price reaches an interest level where it has historically fallen, it tends to react. Bitcoin managed a small rebound from this level but succumbed to selling once it was breached. After that, it was a quick trip to almost $ 30,000.
Bliss breaks down the narratives and investor psychology behind bitcoin as it peaked, manifested by price action in the chart. “First of all, Tesla decided that they weren’t going to accept it as payment for their cars anymore… People started beating Elon Musk pretty drastically, on both Bitcoin and Dogecoin,” he said. declared.
More recently, news that the FBI has recovered most of the bitcoin paid by Colonial Pipeline to ransomware hackers has cast doubt on the security of bitcoin and caused prices to fall further, Bliss said.
“[P]People were concerned about the security of bitcoin. You know, there are still questions about how the FBI located this? ”Bliss said, adding,“ The spy company could probably answer better than I do. ”
Jared Blikre is a news anchor and market journalist on Yahoo Finance Live. Follow him @SPYJared
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