Finances

How Hard is it to Predict the Price of Cryptocurrencies?

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Written by Quentin Hack

Do you know anything about cryptocurrencies? Or how its prices are predicted every day? No?

Then this blog is for you! Here we will talk about the different methods used for its price prediction and how hard it is for the experts to do so – that too daily!

You must know that although cryptocurrencies have been around us for a very long time, their popularity soared to heights only in 2017. It became famous among people because it allows users to use the internet to carry out transfers and storage anonymously. In a world where every move is recorded when you use the internet, it is refreshing to have a platform that allows you to do stuff anonymously.

However, it also created suspicions about how reliable these currencies were since any government financial institution did not back them. But with time, all the doubts cleared as people got to see for themselves that cryptocurrencies were not just reliable but also a convenient way of making purchases. Cut to 2021 – people still love it!

But how is the worth of these digital currencies forecasted?

You must already know that the machine learning method is widely used for predicting stock market prices. Through a host of multiple time series models, the method’s application in forecasting the worth of virtual currencies has been restrictive. The main reason behind it is their dependency on numerous factors such as the economy, technological progress, competition, political factors, and security concerns.

Ways of Forecasting the Price Trends of Cryptocurrencies:

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Although cryptocurrencies have a highly unstable nature, they have the potential of generating profits. But due to the shortage of proper indexes, they remain unpredictable compared to the traditional stock market prediction. Though technology has made the types of analysis used in the crypto industry more accessible and easier to conduct, they have been the staples of the financial world for a long time. If you want to learn how to make smarter trading decisions, visit this site.

Let’s talk about the different types of methods used in forecasting the value of virtual currency:

Technical Analysis

Technical analysis is the most common method used to foresee the value of the virtual currency. It uses statistical trends based on price activities from the past. Since the electronic market trades 24/7, active traders monitor the prices all the time, which helps generate tons of data for systematic trading.

This analysis is dependent on the belief that the value of digital currencies follow the same trend and repeat themselves. That is why it focuses on examining the price movements and trading volumes to determine the future directions of crypto price – whether it will rise or fall. It thus eliminates the risk of human errors while calculating, helping make the entire process run faster.

Some common trends used for technical analysis are:

  • Trend lines disregard anomalies and extreme outliners in the price to detect a progressing movement when assets reach new highs.
  • Moving average involves tracing the worth of assets for a fixed period, be it weeks, days, or months.

Fundamental Analysis

Following an entirely opposite approach from the technical method, fundamental analysis scans the factors contributing to the fluctuating price trends. Instead of concentrating on the value, it considers the factors that drive the numbers up and down – economy, polity, management, etc., thus determining the asset’s true value. The chief feature of this method is that it stirs up emotion and follows the philosophy that the market may have ignored or wrongly estimated.

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Sentimental Analysis

As its name suggests, this method puts the sentiments and emotions of the trader at the front. It means that here the trader uses his emotional side to predict the price trends of crypto. You will notice that almost 90% of the crypto movement is linked to the herd instinct – people acting and thinking in similar ways.

So, instead of solely relying on the market or historical data, it focuses on the emotional trends based on public perceptions and expectations – purchase spree, panic selling. Click on oldskoolman.de/trading-software/1k-daily-profit to learn about predicting the value of crypto.

Candlesticks

There are various types of charts that help in analyzing price trends. It includes candlesticks, a type of price chart used to perform technical analysis. Since you cannot see the details about how crypto fluctuates throughout one session, candlesticks show how it varies for days, weeks, and even months. It thus shows the high-low and opening-closing prices of a cryptocurrency, security, or derivative.

Over the course of a day, when the value of a digital currency goes up, the candlestick becomes green. The line at the bottom shows the lowest price for the asset recorded during a trading session, while the top line displays the highest price reached. Meanwhile, when the worth of a digital asset dives, the candlestick turns red – and everything is inverted, from top to bottom.

The pattern is divided into two prime categories – bullish and bearish. You must have heard of these terms often in the stock market. They are further split into multiple categories – while bullish pattern includes hammer, inverse hammer, and morning star; bearish pattern comprises shooting star and hanging man.

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Final Words

It is crucial to note that relying on just one price analysis method is similar to eating the steak with just a fork – you need a knife too! Although technical analysis is helpful, fundamental factors that are causing the price movements are too. It includes elements like hacking attacks, landmark agreements, and regulatory rulings – which help you stay ahead!

Analyzing the crypto price trends is crucial for anyone who is planning to enter the financial market. It helps them decide the right time to step in and jump on the opportunity of making profits. It also allows them to determine when to buy, sell, or hold digital assets to reap the maximum benefits. Making such informed decisions can help the traders a lot in the long run.

About the author

Quentin Hack