Is Bitcoin a Stable Long-Term Investment?

Charts and Patterns

Learning to interpret market analysis is the skill of understanding both human and market patterns. The same is true about statistical analyses for cryptocurrency. Understanding you're the patterns that govern cryptocurrencies can lead you to more savvy investments and greater profits.

But patterns can be misleading. Sometimes we want to see things that are not really there. It is always possible to interpret data to confirm our biases. To avoid these kinds of human pitfalls, traders should use more than one kind of analysis.

There are limitless ways to begin technical analysis: Bollinger Bands, Fibonacci retracements, Market Cap, Moving Average Convergence Divergence. You can also use volume, and there are unlimited charts at your disposal, even for cryptocurrencies.

Let's say you want to buy Bitcoin, but you are unsure when you should or what price you pay. The ideal is to buy low and sell high. Knowing when those lows and highs will arrive requires a strong understanding of both the asset and the overall market.

Technical analysis means running the past data on the asset you have in order to understand its value over time. For instance, many factors determine the Bitcoin price, and technical analysis can help to unpack these factors. With cryptocurrencies, this is more difficult because there isn't as much historical data to assess compared to other assets have, like gold or Microsoft. Still, there are lots of ways to apply technical analysis to cryptocurrencies.

For those who are just getting into technical analysis, there are a few things that you can start to notice. Here, we cover a few basic concepts about how to use technical analysis for trading cryptocurrency.

Market Cap

Market cap or capitalization is the amount that a company or cryptocurrency is worth. The stock market determines this value. It is derived from the total market value of all outstanding shares. Typically, investing in companies with a high market cap leads to greater returns over the long haul.

A high market cap can also indicate that cryptocurrency has been around for a while. Considering the longevity of a cryptocurrency is helpful because it shows the token has staying power, and the future of the token likely offers returns.

Term Overview

A basic but central concept for technical analysis is trend lines. Analysts use trend lines to predict and recognize the direction of a cryptocurrency. These charts tell us if a token will increase in value and volume or decrease in value and volume.

 Particularly with volatile assets like cryptocurrencies, the technical analysis aims to find the trends and patterns over the longer term. The analysis of the general trajectory of an asset takes place in the smaller highs and lows.

• Uptrend: These are indications that the asset moves up, leading to higher highs and higher lows.

• Downtrend: This is the reverse, where an asset is dropping with lower highs and lower lows.

• Sideways trend: This means that the horizontal movement of the lines shows the progress that is slow and steady.

• Bear and Bull Markets: Trends often get described as either "Bearish" and "Bullish." Bullish means the asset is quickly moving in an uptrend. The imagery is from a bull that uses its horns to strike upwards; it is volatile. The bear is a downtrend image. It strikes with its claws, and so bears knock price downward.

By understanding these terms and applying technical concepts, we can better understand the movement and behavior of our assets. What we want to do is figure out where and when we should enter and exit the market. That way, we can set up profitable entry prices, exit prices, and stop prices.

Support and Resistance Levels

The basic principle of scarcity is that if there is too much of a product, the value drops. On the other hand, the price of an asset is driven upwards if it is scarce. Support and resistance levels are determined by reading the data charts to track sales. These lines are horizontal and are created by drawing a line onto your trading charts. What we are looking for are supply and demand patterns.

Rules of Thumb

Support: means there is a low demand for the cryptocurrency

Resistance: means there is too much demand

Support level means the asset is at the point where traders have purchased high quantities of the token. There is a great demand and high liquidity, which makes the price drop. At this point, the previous market demand stops or declines.

Resistance works in the other direction, where there is a heavy supply and low demand of the asset. It often suggests that investors think the token is overpriced, and so they won't buy any. Once the token reaches the resistance level, the price of the token drops. At that time, investors start to buy again.

Candlestick Charts

Candlestick charts look like a collection of red and green candlesticks. The length of the candlestick is an indicator of the market trajectory. We look at both the "top wicks" and "bottom wicks." On the charts and "wicks" and "sticks" are either red or green. Red candlesticks mean that the price has dropped. On the other hand, green indicates that the value rose.

Bottom Wick: When the bottom wick is long, there is market volatility. The long wick means that there has been a significant change in the price of the asset. Depending on the color, a long wick means a significant loss when the chart is red. Or it denotes again if the candlestick is green. Volatility might mean that the market has suddenly changed, and a correction is soon to follow.

Short Bottom: A short wick means there is a recent peak in value. A short wick means less volatility, and so the asset is not being traded as much. It could mean that investors are holding.

Top Wick Short: When the top wick is green, the asset had a high the day before, and people have turned a profit. This can sometimes suggest that a bearish market is nearby. It also means that the token is being traded, which increases the market supply. It also indicates the price is soon to drop for lack of demand.

Long top wick: This indicates that investors are holding out for the dip. It also means that soon the token will see upward movement.

Technical analysis is never a sure thing, and it is always best to practice your analyses with test runs and simulations. Many cryptocurrency exchanges offer pro tools so that investors can test and practice their analysis of market trends. Once you have more of your own data based on your own analyses, you can try your skills out in the real world.

As an investor, it is important to understand where your assets get their value from, and the same is true of Bitcoin and cryptocurrencies. Read what others have to say about the technology and check on how it has performed in the marketplace. The more holistic your vision of your assets are, the better able you will be at applying analysis techniques.