I really appreciated professor @stream4u's lesson about price forecasting. In my home-work I will do my best to show what I have learned, and also share my personal thoughts about price forecasting and the different methods for market analysis.
Source of robot vector - Pixabay
What Is Price Forecasting?
Price forecasting can be compared to many things. Just like you can look at the squads of two football teams and predict a match based on that, or you can take a look at results from the last 10 matches of two teams, and that will also give you a feeling of what might be ahead as they will play their next matches. In the same way, it is possible to predict the direction of the market in general, and also different cryptocurrencies. In other words, price forecasting is about looking at different aspects of the market and using different tools and methods of analysis to try to predict how the market will respond to what might be ahead.
Price forecasting is not about guessing, but it is about actually studying and looking at real aspects of a cryptocurrency, and based on this, make a prediction for where it might move on in the coming days, weeks, months, and years.
Is this really needed, or is it just crap?
Price forecasting is absolutely needed, but there are lots of wrong thoughts about it as well. Sometimes you can see people share charts telling that crypto is going to the moon, but if you take a closer look at the chart, you will see that there is no real volume behind the chart. We can also see how people create charts that will look exactly the way they want the charts to look, and if you make charts based on minutes or hours, then they can also look very different from charts based on days or weeks. So, there is a lot of crap and junk when it comes to technical analysis, but that doesn't make everything worse. You just need to tread carefully and use common sense and do your own thorough research before you buy or sell based on the analysis.
Price forecasting is absolutely needed, but it is very important to understand the limitations of this, especially dealing with cryptocurrencies which are very volatile. That is why I also approach the entire topic of price forecasting being very careful, and I will explain what I mean right now.
Which method to use for price forecasting? I believe you need to combine them all!
Let us move back to football again. Lionel Messi might be a fantastic striker, and based on him, Barcelona should win all their matches. But, if their goalkeeper Ter Stegen makes 5 mistakes, it doesn't help the team to have Messi on top. You need to consider the entire team before you bet your money on their victory. There are several strategies that you can use for price forecasting, including Technical Analysis, Fundemental Analysis, and Sentimental Anaylsis.
To be honest, if I had to pick one of them, I would probably look at the sentimental analysis, which deals with the market in general. Here you don't look especially at one given crypto, but you read blogs, you take a look at newspapers, you check what's trending on Google, and you try to get a sentiment of the market in general. You have to be careful here as well, but it is working quite well - if your team is doing well, then every single player will do better, even if they might not be very good. So, if the crypto market is booming, often cryptos with terrible teams and no special charts available, might boom - simply because everything is mooning. We have seen it during the current bullrun as well, many currencies that was on the outside during the first part of the bullrun, joined in during the second or the third round. Steem, for example, remained on $0,2 for a long time, when many other currencies went upwards. But, during a later leg, they suddenly jumped on the rocket and went to $1,2.
A wholesome approach is the solution. Background source: Pixabay
But, the best solution is a wholesome approach. If I want to invest in a project, I believe you need to do a wholesome approach, which should include all three aspects. It is well worth consulting someone with insight in Technical Analysis, to see if there is anything you should look out for on the charts if there are special levels of resistance or support worth knowing about. If you see crypto running along a strong line of support in a bullish market (based on sentimental analysis), I would call it a low-risk investment. If you even combine this with a stop-loss 5%-10% under the support level, then you should have a good chance of success.
So, now we have a good technical analysis ready, we have a good market sentiment. Now it is time to look into the given project to see if it is actually worth investing in. Do you know the team members? What is the goal of the project? Does it have a good reputation? Has it been around for a long time? Is it surrounded by a strong community? If you do a check on the fundamental analysis and you get a green light, combined with a green light based on the technical analysis and also the sentimental analysis, then you are looking at something that might be very promising.
One more thing when doing price forecasting in crypto...
I guess this has to do with the market sentiment, but if you ever want to invest in crypto (and it isn't Bitcoin), then it is always worth looking into Bitcoin as well. How come? Your crypto might be the best in the world, and it might have the best team in the world. It might have an amazing chart, and every aspect might shout BUY. But, one should never forget that Bitcoin is king in the world of crypto. If news will come tomorrow that Joe Biden will make Bitcoin illegal, and that China will ban miners from the country, and that you will have to pay 90% tax on Bitcoin in Europe, the price will fall like crazy. And no matter how cool your crypto is, the fall will be greater for your crypto than for Bitcoin. That is just how crypto works (at the moment).
That is why one should never forget to pay extra attention to Bitcoin when investing in crypto and when doing price forecasting.
An example of price forecasting with technical analysis of Polkadot / USD
Here I would like to show an example of price forecasting based on a technical analysis of the Polkadot / USD chart. The chart is based on a daily chart, which should give a very true picture of the movements of the cryptocurrency. Once again, you should always check the general market sentiment as well, but here I will just take a closer look at the chart.
One of the most important things when doing technical analysis is to learn the principle of resistance and support. As you can see on the chart, I have showed support and resistance level at several places. And a very basic is that when something break a resistance level, that will normally turn into a new level of support. When a support level breaks, that will turn into a new level of resistance. That can be seen very clearly on the chart above as well.
Lessons from the chart above.
- Polkadot currently has strong support around $27,5USD. It hasn't closed below this level since February 22nd. Considering that the current price is $29,4, we are close to the support level.
- If you own Polkadot tokens, you might consider selling when it approaches $40. It has been resisted around that level several times, and it seems very hard for Polkadot to break that level and to stabilize above that level and to make it its new support.
Thank you @stream4u for your very interesting lesson. I look forward to reading your feedback on my homework, and look forward to reading your future crypto academy courses here on Steemit!