Technical Analysis is Key to Success!
As the debate continues within the global financial industry on the future role of digital assets within investment portfolios, there are several key facts the investors need to integrate into long and short analysis of crypto currencies such Bitcoin (BTC) & Ethereum (ETH):
Crypto Prices Trend: History teaches us that prices of conventional investments ranging from stocks to housing move in pronounced price trends as the economic forces of demand & supply influence the value. As the following charts show, both BTC & ETH display short, intermediate & long-term price trends like equities and commodities. This reason alone lays legitimacy to the claim these are in fact investment assets and not a fad. Simply put, if an asset trends, its tradable!
Technical Analysis: When price trends exist, technical analysis can be used to identify the current trends as well as clues to future direction (like time-tested trading tools used on other commodities). For example, the 20-week simple moving average is an effective tool for analyzing changes in the direction of significant price trends of Bitcoin.
Since 2015, a price crossing of more than 4% in the price of BTC above or below its 20-week moving average (red line) was a strong indicator of significant uptrends or downtrends emerging. In fact, 71% of the time a positive crossing signaled rallies that advanced 436% on average. On the flipside, a negative crossing was a precursor to the BTC bear markets in 2018 & 2022 where prices declined over 50% (see chart below).
Strong Relationship with NASDAQ Composite: One of the interesting twists in the evaluation of cryptos is the strong relationship to the NASDAQ composite. In a monthly basis, BTC tracks the trend of the NASDAQ 63%. The relationship is event stronger on a quarterly basis, a whopping 74% of the time (See charts below).
Major cryptocurrencies had a huge rebound in value since 2022’s cryptocurrency massacre. However, BTC just crossed its 20-week and now might be the time to diversify their portfolios into commodities or hedge exposure with derivatives.
Remember, trend is your friend!
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