When it comes to pricing predictions, we see all sorts of claims: one person says Bitcoin will hit $900, while the other says it will skyrocket past $100,000. This article explores the world of cryptocurrency signals and technical analysis to clarify the methodologies behind pricing predictions.
When new members join the Cosmic Trading Group, one of the things they look forward to most is the cryptocurrency signals. A signal is just a message letting people know what a cryptocurrency’s price might increase to; people can use this information to help decide whether or not they want to buy into that crypto in order to take advantage of the !
How Do Signals Work?
Essentially, when an analyst is confident enough in his or her prediction of an upcoming price trend (usually an opportunity to buy a coin), it gets published in the group. Community members can browse through the various signals, and decide which ones he or she agrees with to participate in. Usually, these predictions come with a few bits of information:
The buy range, which indicates which range is a good time to buy in (usually indicated in Satoshis);
The sell targets, which tell the members at what price the analyst believes is a good price to sell (also indicated in Satoshis). Sometimes, sell targets come in various tiers, with low goals for less risk and higher goals for people who anticipate higher returns and accept the higher risk associated with it;
The stop loss, which indicates when the members should sell the coin and cut their losses in case the prediction is inaccurate.
Those three pieces of information are usually enough for a member to have all the pricing information he or she needs to decide whether or not he or she will purchase.
But signals are only as accurate as the analysis behind them. There are some obvious ways that some signals are suggested, which are more focused on qualitative analysis on things such as:
Upcoming milestones and how those milestones might affect the price.
News and associated sentiment analysis regarding how the news will be perceived.
General makeup of the community and team including the team’s credibility, track record of execution.
The majority of cryptocurrency signals, though, especially short-term ones, rely primarily on Technical Analysis, or TA for short.
You might’ve heard of technical analysis, or similar terms to describe the same process including risk/rewards analysis or market psychology. Technical analysis (TA) is a trading strategy that has been traditional used in stock market trading for high-frequency traders, hedge funds, brokers, and individually; basically, lots of people use TA to study pricing patterns and try to make predictions about psychological behavior. In a nutshell, it looks at the current behavior of all the buys and sells for a particular coin and tries to answer the question:
/Based on the recent and historical pricing patterns, what do you think traders will do next?
The Effectiveness of Technical Analysis in Cryptocurrency
Technical analysis is especially powerful in cryptocurrency markets due to several factors. We know that the cryptocurrency markets are largely speculative, and the spectrum of investors range from veterans of the stock market to crypto traders who have been in the space for years to people who don’t even know what a stock is and heard about Bitcoin 5 minutes ago and are now investing in cryptocurrency. Due to the lack of general understanding of cryptocurrency and its underlying value, we see a lot of pricing sensitivity pegged to things like news, hype, and sudden drops/increases in price.
Also, the overall market cap of cryptocurrency is under $500 Billion (source: https://coinlib.io/) at the time of writing. Apart from that, some of the trade volume for smaller coins are so low that even buying $10,000 worth of the coin can result in a significant increase in the price, which is what leads to price manipulation and potential pump-and-dump schemes. In other words, the current market is especially sensitive to buyer and seller behavior.
Finally, another contributor is bots. Trading bots are pervasive in the cryptocurrency world, and most of these bots take advantage of technical analysis to make trades. The combination of low volume and technical-analysis trades made by trading bots contributes to the potential effectiveness of the overall practice of technical analysis on the marketplace.
The combination of 1) low volume that subjects certain coins to more volatility, 2) bots that leverage technical analysis to make trading decisions and indirectly move the needle of coin prices, which, again, is more sensitive due to volume limitations, and 3) the resulting response from buyers and sellers in a speculative market as they see the price changing, can suggest that traders can take advantage of technical analysis to potentially predict the price movement of coins.