16% of Americans invest in cryptocurrency, and that number is expected to grow. But with cryptocurrencies being such a volatile asset, it is challenging to know the best time to buy and sell. We’ll explain what causes these explosive rises and falls in cryptocurrency prices so you can invest more wisely.
Key Crypto Market Indicators that Cause Cryptocurrency to Rise and Fall
While no one can accurately predict the crypto market’s future, some technical analysis calculations and indicators can spot trends, warnings, and patterns in the cryptocurrency market that can help you see the signs of when a crypto coin will rise or fall.
A single indicator can’t signal a reversal or confirm a market trend. But you can use a combination of crypto market indicators to identify signals that typically cause a token price to rise or fall. By analyzing a token’s past trading activity, you’ll recognize signs of price movement in the future.
The type of crypto trading strategy you adopt will determine which indicators are most useful to you.
Technical Analysis Indicators
These technical analysis indicators are traditional trading tools to assess when an asset’s price will trend up (bullish) or down (bearish). Many crypto exchanges build these tools into their crypto price chart to help investors assess whether it is an excellent time to buy or sell.
Moving Average (MA)
This lagging indicator calculates the price averages over a specified time period and identifies crypto trading patterns. Common time periods that traders most use are 200-day, 50-day, and 20-day moving averages.
Simple Moving Average (SMA)
This indicator tracks price trends that don’t change direction very quickly and give a bigger picture of long-term trends. A 50-period SMA is a popular tool for identifying support and resistance trends.
Exponential Moving Average (EMA)
This indicator tracks real-time price changes and gives more weight to recent price action.
Bollinger Bands
This indicator has three parts that show price volatility. It uses a 20-period SMA and two bands that illustrate positive and negative standard deviations from the SMA.
Moving Average Convergence Divergence Indicator (MACD)
A popular crypto trading indicator, the MACD identifies when moving averages are moving toward or apart from one another, highlighting when a crypto price is changing in direction, momentum, strength, and duration of the price trend.
When the MACD is above 0, the price has an upside momentum. Below 0, the price has downside momentum.
Relative Strength Index (RSI)
A momentum indicator identifies a crypto coin’s strength or weakness based on recent price changes where the coin was oversold or overbought. The RSI can signal divergence and warn of trend reversals.
It is usually measured over a 14-day period on a scale of 0 – 100. If the coin drops below 30 on the RSI, it is oversold. Over 70 on the RSI signals that the currency is overbought.
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Social Media Indicators
You’ll also want to follow and evaluate social media and search traffic for the cryptocurrency to identify when a price will rise and fall. If the company announces a partnership or gets influencer promotion, it can spike the crypto’s price. For crypto projects you invest in or may invest in the future, you may want to follow.
Fear and Greed Index
You also will want to pay attention to the Fear and Greed Index, which measures the trading market sentiment and can signal when investors have a fear of missing out (FOMO) and will trigger a buying frenzy.
The Fear and Greed Index analyzes when investors are feeling greedy or uncertain from a number of sources:
- Bitcoin dominance
- Google Trends
- Polls
- Social Media
- Trading Volume
It then identifies the market sentiment on a scale of 0 to 100. 0 being extreme fear, and 100 being extreme greed. When the index measures that greed is high, prices go up. When investors are fearful, crypto prices drop.
Bitcoin
Being the first cryptocurrency and gaining the largest market cap within the market, Bitcoin influences the entire market. So regardless of how successful your cryptocurrency is performing, if Bitcoin is having a bad day and its price drops, the whole market follows.
As more coins grow in adoption, Bitcoin’s influence over the market will diminish. But currently, it’s critical to watch Bitcoin’s price movement. When Bitcoin is down, this is a good time to buy other crypto tokens because they will trend down with Bitcoin.
What Causes Cryptocurrency to Drop?
Aside from being a highly volatile market, US News points to six factors that cause cryptocurrency to drop:
- Crypto investors leverage too much
- Lack of liquidity
- Government regulations
- Security and network breaches or attacks
- Crypto influencers can create fear and panic-sells
- Influence of the stock market and Wall St.
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What Causes Sudden Rises in Cryptocurrency?
Just like the stock market, common factors can cause sudden rises in cryptocurrency as a market or for an individual coin:
- Influencers and social media can cause investors to FOMO into buying
- Traditional finance institutions announce investments in cryptocurrencies or Bitcoin
- Market events and conditions can increase investor confidence
- Wider public adoption as a viable investment opportunity or digital payment
- Altcoins will spike in price when added to larger cryptocurrency exchanges
- Becoming more accessible and easier to trade
- Company news, partnerships, or announcements
Do Your Research And Follow These Indicators to Invest Wisely
While no one can predict the cryptocurrency market future, you can watch key indicators that signal trends when a coin’s price rises or falls. By researching and monitoring these indicators, you’ll be able to buy crypto coins at the best time and get out before prices drop drastically.
Unbanked publishes the latest trends, news, and shifts in the blockchain markets that may influence your investment strategy. We believe in educating investors on blockchain platforms and technology so they can invest wisely.
Related Link: Cryptocurrencies as a Solution for the Unbanked
