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Best Coin Exchange » Bitcoin Trend Spotting: How To Identify It?

Bitcoin Trend Spotting: How To Identify It?

bitcoin trends bestcoinexchange
Carlyle Alberico on July 21, 2014 - 11:47 pm in News

Trends play a very important role in trading, giving a chance for traders to use patterns in the price chart to make decisions that are based on more than a simple falls and rises or worse, gut instinct. Although, how to identify and draw a trend-line on a chart?

If you look at a Bitcoin price chart below you will notice how prices seem to be drawn along invisible lines at times:

bitcoin chart 1

Daily chart via Coinstackr.com

Those invisible lines can be seen on whichever chart you will look at, be it a daily, weekly or a 30-minute chart:

bitcoin chart 2

Weekly chart via Coinstackr.com
bitcoin chart 3

30-minute chart via Coinstackr.com

Trend channels and trend lines

So those lines are called the ‘trend lines’. Although it is obvious that the prices does not only follow trend lines, they frequently move back and forth among two trend lines:

bitcoin chart 4

4-hour chart via Coinstackr.com

It is called a ‘trend channel’ and it is perhaps one of the most widely used conceptions in technical price analysis. Importantly, trends can be divided in to shorter trend segments that can also be made of even shorter segments:

bitcoin chart 5

1-hour chart via Coinstackr.com

The price trends are vastly fractal in nature – they appear very similar and it does not matter what time frame you look at them.

How to draw the trend lines and channels

Obviously it is quite easy to draw trends as all you need is an interactive chart platform that enables you to do a drawing on the charts such as ZeroBlock or Coinstackr’s Bitcoin Charts for instance. Use the ‘channel’ or ‘line’ tools for:

Drawing uptrends

Uptrends follow the lower trend line more thoroughly, thus you need to start with one of the trend’s lows (see [1]). Follow by drawing a line to one of the upper lows (see [2]).

bitcoin chart 6

Daily chart via Coinstackr.com

Later after drawing the line you will have to move it around to adjust the angle so the trend’s price lows are touched as precise as possible. However, trend lines almost never fit prices ideally, thus some price candles are going to always pierce through

Drawing downtrends

Drawing downtrends is almost the same as uptrends, the only difference is that you need so start with the upper resisting trend line:

bitcoin chart 7

Daily chart via Coinstackr.com

Relying on trends in trading

As long as trends can be beneficial, it is not suggested to rely only on them as the sole factor on any decision making. Even if the prices would hit the lower trend line of an uptrend and buying Bitcoin would look like a smart choice, it is very important to look for more signs (eg: price action patterns, volume analysis, support and resistance levels) confirming that it is time to invest in Bitcoin and the trend will not break.

Preferably, you would need to counsel on more than just one indicator to somewhat increase your odds of making a profitable trade.

Moreover, you should always remember to carefully look for higher and lower time frame trends. You may think that prices are in an uptrend on one time frame, when a higher time frame can show that prices are in fact in a downtrend.

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