Granted, past performance is not a guarantee of future returns.
But economists at Yale University say they’ve come up with a technique to predict price movements based on prior Bitcoin behavior. While the volatile currency has bounced within a range of $6,000 and $9,000, there are profitable patterns.
Their findings, published in The National Bureau of Economic Research, reportedly “determine there is a strong time-series momentum effect and the proxies for investor attention strongly forecast cryptocurrency returns.”
They say the strategy generates outstanding returns.
The first factor is the momentum effect. The report found that if the price of BTC increases sharply over a one-week time frame, it’s likely to maintain that momentum in the following week. “Momentum is actually something simple,” the report notes. “If things go up, they continue to go up on average, and if things go down, they continue to go down,” at least in the short run.
Given recent history of price action, that’s not necessarily something to rely on.
The other factor is the investor attention effect.
The report also found that the amount of interest and hype around coin, as measured by Google searches, is also a good predictor. They’re simply looking for search spikes, which we saw with Ethereum Classic (ETC) and its Coinbase listing.
As reported by CNBC, for Ripple, “the Google search proxy statistically significantly predicts 1- week ahead returns,” and for Ethereum, “the Google search proxy statistically significantly predicts 1-week, 3-week, and 6-week ahead returns.”
There’s a much easier way to find opportunity, though.
In fact, all you really need to watch is herd mentality reactions to news. Pay attention to excessive bouts of fear and greed, much like billionaire investors.
Warren Buffett, for example, will tell you to be greedy when others are fearful, and fearful when others are greedy. Sir John Templeton would tell you to buy excessive pessimism. Baron Rothschild would tell you to buy the blood in the streets.
That’s step one.
Step two involves charting cryptocurrencies with momentum indicators which can dictate where and when a buy or sell opportunity exists. Some of the best indicators to use are Bollinger Bands (2,20), MACD, Relative Strength (RSI), and Williams %R (W%R).
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