Crypto Academy Week 10 - Homework Post for @stream4u | All About Price Forecasting by @abu78

Hello to all steemians, I am much delighted to write and submit my homework post for this weeks homework post.
I would like to use this opportunity to show my appreciations to prof @stream4u for this great lecture taught this week.

INTRODUCTION

In this my post, I would be elaborating more about what is price forecasting, why price forecasting is important, methods or ways of for price forecasting and also the use of Chart graph in explaining price forecasting.

WHAT IS PRICE FORECASTING?

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One may be perplexed if asked about what the price of Bitcoin or any other cryptocurrency would be in the next month or the next coming year. I would say this is an ambiguous question that is unpredictable, but with specific or technical analysis it is now possible to forecast the price of any cryptocurrency in the near future.
Price Forecasting refers to the methods used by cryptocurrency traders in predicting the future price of assets by evaluating certain factors such as demands, features, and trends for certain periods.
Price forecasting is done generally by descriptive and predictive analytics methods.

Descriptive Analytics: This method depends on statistical methods such as analysis, interpretation, collection of data, and presenting of findings. Descriptive analytics aids in changing observations into knowledge.

Predictive Analytics: In this type of analytics, price forecasting is done by analyzing the current and past data to predict the possible future events or outcomes in the price. This method needs many statistical techniques before, and these techniques include identification of data patterns and also machine learning.

HOW TO DO PRICE FORECASTING

Price forecasting is really a challenging thing to do and it should be done with intense care. One can achieve the aim of price forecasting by following the steps below;

1.Identifying and knowing The Crypto Asset
One is needed to make more research on the kind of crypto assets he/she wants to predict. Over here, a better understanding of how the asset works, its features, its current price, how it is traded, and its concept too is researched and defined accurately before diving into its forecasting.

2.Choosing a Good Forecasting Method
After making your research and defining all the concepts regarding the crypto assets you want to forecast, it is over here that you choose an appropriate method that suits the assets/ currency you wish to forecast. This method includes the need for historical data of the asset/currency to be forecasted in order to know the perfect technique to use in price forecasting.

3.Observing Historical Trends/ Patterns: This where previous trends/patterns are read and observed thoroughly to help predict the future price. This is where forecasting begins and it should be studied with much care and observation.

WHY PRICE FORECASTING IS NEEDED
Price forecasting is very necessary for crypto trading and the following enumerates some of these benefits;
1.Price forecasting helps traders to anticipate change within the crypto market: Price forecasting makes crypto traders be more active instead of reactive. This is because it provides crypto traders with insight into the future and what is going to happen in the coming years, and as a result, puts them in active position than in a reactive position.

2.Price forecasting aids crypto traders in setting better goals and plans: Price forecasting helps traders to obtain accurate data and this data helps traders to set reasonable and achievable goals based on the data gotten, i.e. current and previous/historical data. Price forecasting again abet traders in taking decisions regarding the growth and development of the crypto asset being analyzed.

3.Price forecasting also helps traders in setting a good budget. Price forecasting helps crypto traders to know the kind of cryptocurrency to allocate their budget onto. As price forecasting dictates the future amount or value of a cryptocurrency in the crypto market helps traders to know where to budget their money into.

4.Price forecasting aids investors to achieve high Profits: Price forecasting aids crypto traders to acquire many profits as it helps the trader to determine when to sell and acquire high profits and when to buy at a lower price when resistance is reached.

METHODS BEST FOR PRICE PREDICTION/FORECASTING?

The methods for price forecasting are generally three, and these include the following;
•Fundamental Analysis
•Technical Analysis
•Sentimental Analysis

FUNDAMENTAL ANALYSIS
In the fundamental analysis method, the traders do not take into consideration the current market pattern and price but rather, they go into detailed research about the company’s management team’s performance. Fundamental analysis does examine every factor that has change on the value of a security. Fundamental analysis is further classified into qualitative analysis and quantitative analysis.

HOW DO FUNDAMENTAL ANALYSIS OPERATE
Let’s consider we are going to forecast Ripple Currency for instance using fundamental analysis. In this type of analysis, the trader is going to navigate through whether ripple’s company is performing, ripple market supply is increasing or decreasing, the weekly and monthly balance sheet of ripple, ripple’s Profit-Loss-Depth ratio, and whether ripple’s team is also working hard to improve it or not. When all this is found well improving, then the trader has a go-ahead light to invest in ripple currency without watching the current market pattern of ripple.

TECHNICAL ANALYSIS
In technical analysis, the traders consider the following factors before investing in such currency, these factors include; market support, bearish bullish pattern, the chart trend, the movement of the price, and also identifying the trend/pattern of the market. Over here, Charts are used in forecasting the future price and trading signal of an asset.

HOW DO TECHNICAL ANALYSIS OPERATE
Technical analysis helps to forecast price changes by reading and analyzing the historical information, i.e. the price and volume of an asset. This method of analysis aid teaches traders what is most likely to happen in the near future from analysis of previous data or information.
Technical analysis is very hard to comprehend and needs much time to learn and understand. It is the most tedious method among the three methods.

SENTIMENTAL ANALYSIS
Sentimental analysis refers to the process whereby the nature of the market is determined to see whether it is positive, negative, or neutral. It helps in monitoring brand and product reputations and also conducting market research, and understanding customer experiences.

HOW DO SENTIMENTAL ANALYSIS WORK
1.It, first of all, breaks down each text into its simple components.
2.Identification of each sentiment bearing component
3.Sentiment score is attached to each component and phrase. i.e. (-1 to +1)
4.Next is the combination of scores for sentimental analysis.

HOW TO USE A CRYPTO ASSET CHART GRAPH TO EXPLAIN HOW PRICE FORECASTING IS DONE

I would take use Binance Coin (BNB) chart to explain how price forecasting is done by using the technical analysis.

SUPPORT LEVEL: refers to the price level in which the crypto price is expected to bounce back after a fall. At this level, sellers do hold up their coins and buyers also buy new coins at this period.
Bearish sentiment is augmented when the support level doesn’t keep the price stable and the cryptocurrency’s price still depreciates.

RESISTANCE LEVEL: This level is anonymous to that of the support level. Meaning at this level sellers see the current price as a good investment to sell the cryptocurrency whilst the buyers at this period hold back the currency because the price at the resistance level is seen to be high to purchase any cryptocurrency.

EXAMPLE 1:

The above chart is the Binance chart from 2020. The support level on 7th February 2020 became resistant on 26th February 2020. We can see that the price rose very high within the first two weeks of February and there was a fall after the price hits the support level on 13th February 2020. The price value was 20.7462 BNB at the support level.

EXAMPLE 2:

From this chart, as the trend continues, we can see that there was a rapid fall in the price within a short period and this shows that one has to or is supposed to sell the coin when the price reached the resistance level. I have indicated this by drawing a circle and the fall of the coin is indicated in the left circle.
Again we can see from the chart above that, for the coin to rise higher it takes a very long period before reaching the resistance level. Due to this, it is advisable for buyers to buy coins at the support level and sell them when the price reaches the support level.

CONCLUSION

Price forecasting is very important to all crypto traders and as such, it should be added to the plans of all traders in order to know the price estimation for the future. Price forecasting helps crypto traders to set up a good budget for the future.
Thanks to all for reading my post.
Special appreciations to @stream4u for this great lecture.