When they say “the trend is your friend,” it’s not just because the words rhyme: it’s because it happens to be true. If investors are in an asset with the idea of showing a profit, an uptrend is the highly favored situation. It doesn’t matter what the underlying fundamental story is when price is the central factor.
How Sam Bankman-Fried of FTX and Changpeng Zhao (CZ) of Binance work out the issues involved in their Monopoly-like game is interesting and fun but what about the price of bitcoin? Theorizing about whether a bottom may be forming is a chat room favorite but what about the trend in price?
It’s good for the brain to take a few minutes and just study the charts. It’s a great way to reduce the amount of noise that rises whenever big bitcoin-related news stirs the pot. “Hey, it won’t keep going down, I just know it!” is a fine sentiment (if that’s what you fervently believe) as long the steady downtrends have been viewed, however briefly.
Here’s what the bitcoin daily price chart looks like:
The price has broken down through the previous support level from mid-June. It’s now trading below the 50-day moving average. Bitcoin
This is the weekly bitcoin price chart:
The breakdown below that mid-June low is seen clearly on this chart as well. That former support level failed to provide support this time around. It’s bearish that bitcoin is now trading below the 200-week moving average. The clear downward turn (from early this year) of the 50-week moving average is apparent.
Take a look at the monthly price chart for bitcoin:
It’s quite a spectacular fall when viewed on this monthly timeframe. From about 67,500 at its peak in late 2021 to its current price of about 17,000 — that’s a 74% drop in value. Bitcoin is now trading below its 50-month moving average and it has been for 4 months now.
Here’s the point-and-figure chart for bitcoin:
This type of chart is included for the clarity it shows. It would be hard to argue that this is anything but a downtrend.
There are many different ways of analyzing assets and then deciding what kind of action to take. Trend following seems to work for those willing to study it and willing to use stop losses at appropriate levels.
Economic factors drive things and paying attention to the latest consumer price index is a good idea. Keeping an eye on the Fed’s interest rate actions and thinking about it is time well spent.
That said, the most revealing bit of information is usually price trend and especially when viewed on different time frames. The answer to the question “Which way is it going?” is valuable and available.
Not investment advice. For educational purposes only.