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How Do You Spot Trends in Cryptocurrency?

Cryptocurrencies can go through significant price increases and drops in only days. Here is more info about how crypto value fluctuations work and how to identify future movements!
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How Do You Spot Trends in Cryptocurrency?

Cryptocurrencies can go through significant price increases and drops in only days. Is it possible to determine when the value will go up or down? The traders use different tools to spot trends in the crypto market. Here is more info about how crypto value fluctuations work and how to identify future movements!

What Makes Cryptocurrency Go Up or Down

Most cryptos are decentralized, which means no government or central authority backs them. If that happens, that can improve that currency’s reputation. But for most cryptos, these are the factors that change its value:

  • The law of supply and demand. It’s the basic economic law – the price of an asset will increase if its demand goes up faster than supply. Some cryptos, such as Bitcoin, have a limited maximum supply. The mining policies also vary. As for the demand, currency awareness, celebrity commercials, and news and gossips can all affect it.
  • Support from major exchanges. The more exchanges accept crypto, the more likely people are going to trade that asset. That could lead to a price increase. On the other hand, an exchange removing crypto could cause its value to go down.
  • Production cost. Mining is what makes new crypto tokens. Blockchain requires computing power to produce coins. Mining requires powerful PCs, which can be expensive. The currency value needs to cover these expenses and ensure profit for miners. Otherwise, mining could stop and affect the crypto value.
  • Similar currencies. We see many new cryptos becoming available daily. It’s easy to enter but hard to position a currency on the market. But new competitors who do the job right can increase value quickly. They also take a portion of the market share of existing currencies, which decreases their price.
  • Governance. Cryptos have different governance rules. A clear path of development and working on software improvement is what can improve a currency’s value.

Trading Volume and Identifying Trends

You can identify market trends by simply checking out the trading volume. If the volume is high, the price trends are strong. On the other hand, a low trading volume is a sign of weak trends.

Let’s assume that you noticed crypto that’s been rising for a while, but then its price decreased suddenly. The trading volume can tell you if that’s the start of a new trend or a temporary mishap. If the trading volume increases with the price development, that indicates an uptrend in the crypto value. But if the trading volume is low, the current trend could be near termination.

Don’t hesitate to check the best crypto exchange recommendations on our website. Each platform contains trading volume information for each supported currency.

Indicators in Technical Analysis

Technical analysis involves studying price movements from the past to identify potential future trends. It often involves advanced mathematical calculations, which is why you can consider using TradingView or similar tools.

Simple Moving Averages (SMA)

You can start by calculating a moving average (MA). This indicator shows the average price of the chosen crypto in a specific period. Most traders use 20, 50, 100, or 200-day timeframes.

The calculation is:

(A1+A2+A3…An) / N = SMA

A1 marks an average price during the first day, A2 covers the second, etc. N is the number of days, and the result shows the average price in that time. You can compare averages in 50 and 200 days. If the 50-day value crosses above the other one, a price rise could happen. But if it crosses below, it suggests a value decrease will occur soon.

You can also use the exponential moving average, which focuses on the recent data points.

Other Indicators to Use in Technical Analysis

  • MACD – moving average convergence divergence. It calculates 12-day and 26-day exponential moving averages. Comparing them might show if it’s time to buy or sell crypto.
  • RSI – relative strength index. It measures how fast the price of particular crypto moves. It’s an oscillator with values from 1 to 100. Results lower than 30 suggest overselling, and over 70 indicate overbuying.
  • Bollinger bands. You calculate a 20-day moving average and then add and subtract standard deviations from it. That forms three lines that show short-term value movements. It can help to show when a currency is more or less volatile.

Most traders combine multiple tools when performing technical analysis. It helps them to get a better idea of the market.

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