Crypto Academy Week 10 - Homework Post for @stream4u

Professor @stream4u posted a new lecture on Price Forecasting. As part of studying process, I want to submit my homework in this post.

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What Is Price Forecasting?

For me price forecasting is the way to stay calm on crypto market. My experience with crypto started in December 2017. Unfortunately, I knew nothing about price forecasting and lost most of my portfolio. Entering the market at the end of bullrun and seeing it crash into a crypto winter was a truly stressful experience. The only way to save yourself is to know when you should enter the market and when it is time to take profit. This is where price forecasting can bring back calmness to your life.

Why Price Forecasting is needed?

I am not a trader, I am an investor, but I still need price forecasting. First, we need to enter the market. We need price forecasting to find a good entry point. You should never underestimate the entry point importance. For example, you can buy a token at $1, then the price drops to $0.8. After some time the price goes to 5$. You get 5x boost of your investment. If you used price forecasting and entered the market at $0.8, you would get 6.25x to you initial investment. On a long run, even a small discount of 10-20% at entry point turns into significant profit.

Secondly, we need to take out initial investment. Crypto market is highly volatile and for many people to sleep well, you need to take out initial investment or at least part of it. In other words, you need to sell a part of your portfolio. You don’t want to sell your token in a local low when the price is at the support line. You don’t want to sell when the price is about to break through resistance. Price forecasting can help you to sell at a right time.

Finally, price forecasting can also help you to boost your portfolio along the way. Crypto market is highly volatile. You can use market volatility to increase your holding by catching market moves. You can sell at local high, wait for the price to drop to support level and buy back. However, even a practical experience in technical analysis doesn’t give you any guarantees.

My method of price prediction

I’m not good at technical analysis. This is why I like to combine it with what I call “checking market pulse”. For this I check several important charts.

Exchange flows

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BTC market is still the supply vs demand game. If BTC is leaving exchanges, supply drops. BTC coins on cold storage do not participate in price discovery. When people move BTC to exchange, they do it to sell (as storing large amount of crypto on exchanges is discouraged – not your keys, not your crypto). Supply increases and price drops. You can easily check these trends for free on cryptoquant or glassnode. For now we clearly see the trend - BTC supply on exchanges is going down. This is a bullish sign for the market.

The second part of the game is demand. The biggest pair for BTC is USDT (and other stable coins). On the same sources you can check balance and netflows of stable coins for exchanges. When you see more stable coins sent to exchanges, the bigger demand will BTC and altcoins have.

Main actors of the market behavior

There are two main actor groups for BTC: miners and whales. Both groups have large holding of BTC and can cause a strong buying or selling pressure.

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At this moment, Miners' Position Index shows they are accumulating BTC. Miners either expect price to go up or try to push the market to this direction. This is a bullish sign for the market. There are similar charts for large holders. You can track the dynamics for addresses holding large amounts of BTC/ETH. When their holding increases, “smart money” are buying. In other words they consider certain price low. If whales are selling, they drive the price down.

Warning: All the above indicators can be wrong sometimes. For example, large outflows of BTC on the chart above are partly caused by internal transactions on Binance exchange. They do not indicate BTC supply decreases. You always need to check data when you see any large spikes.

Example of price chart

Although the above indicator are helpful, you will still need to combine them with technical analysis. Let’s take a look at current BTC price chart on Binance exchange. I will use 4 hour candles.

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Based on indicators, we know that BTC supply is limited. Miners and large holders support the price by reducing sales. This make support lines stronger. I marked the current support line at $53 318. Indicators makes me think the support will hold. Price chart also backs this statement. The last full candle is red, but its shadow is almost the same size as candle itself. This is close to “umbrella” pattern and indicates the next candle will drive the price up.

I’ve marked the next resistance level at $57 301. As you can see, previously BTC wasn’t able to break through. Chart tells us we will try to retest it again. I will watch inflows of USDT in the next few hours. If I see some decent inflows, this would mean BTC can break through. From the chart, I’m not so sure. I can't tell if BTC gained enough strength yet.

Conclusion

Price forecasting improves your performance on the market and helps to sleep well at night. It is better to use additional indicators to help you with technical analysis.

Disclaimer

I’m not a financial of any kind. I encourage you to check all information yourself and make decision only based on your own opinion. All articles are created for solely entertainment purpose.

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