Great Tools For Investors When Prices Are Volatile
I am a long-term investor.
That means I usually don’t care about short-time price fluctuations.
For me, the answers to the following questions are important: How will Bitcoin price likely perform in the coming 3 to 6 months? Should I exit now and wait for a new cycle to begin in half a year? What will that cycle look like?
Because Bitcoin is very volatile it can be hard to predict short-term prices. But even when prices fluctuate a lot, with the right tools you can figure out long-term trends.
As I mentioned in one of my previous articles, it is important to gather information from different sources.
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That’s why in the following I present you 8 free Bitcoin indicators that you can use as an investor:
1. Bitcoin Fear and Greed Index
“Be fearful when others are greedy, be greedy when others are fearful.”
Buffet spoke a fundamental truth. Knowing the market sentiment is one of the basic things an investor needs in order to take the right steps.
By combining the Greed and Fear Index with historical Bitcoin price movements, you can make decisions on whether to accumulate, hold, or to take profit.
There are several Fear and Greed indices developed by different parties, for example, alternative.me and btctools.io. They offer slightly different calculation methods but in general do align with each other.
2. Moving Averages (MA)
Various Crypto charts are available on exchanges and on platforms such as tradingview.com. Since I am not a trader, I use candle charts only to look at the general trend of price developments. Here, the 50 MA and 200 MA (moving averages for 50 and 200 days, the green and the red lines in the chart above) are the two indicators I look at the most. For example, when the price is below the 50-day MA it is often a bearish sign.
3. On Chain Indicators
Glassnode offers a lot of useful cryptocurrency indicators, such as the Number of Active Entities, Long-Term Holder SPOR, Long-term Holder Net Position Change, etc.
The problem: These indicators are only available for subscribers.
Glassnode publishes a weekly on-chain newsletter which is free. You can subscribe via email or check out past issues here. In the newsletter, Glassnode publishes and analyzes a lot of charts that normally can only be viewed by paying members.
The downside is that when the newsletter is published the data shown in the charts is several days old. For traders, this lag is a problem.
But if you only focus on the long term then I think the stats provided by the newsletter can be quite useful.
Cryptoquant.com also provides some on-chain indicators such as Net Unrealized Profit and Loss (NUPL), Long-term Holder Spent Output Profit Ratio(LTH-SOPR) which overlap with what Glassnode publishes. As an unpaid user, you can see the charts with a small time lag.
4. Stock To Flow Model (S2F)
This is a well-known model developed by PlanB. The stock-to-flow model uses Bitcoin’s scarcity to predict its value. For this cycle, it predicts a BTC price of over 100.000 USD.
So far, PlanB’s model has not been invalidated.
While one should not make decisions based on a single indicator, I think that S2F provides a useful general trend of where Bitcoin price will go.
5. Bitcoin Relative Strength Index
Same as the previous one, this model is also developed by PlanB. A live chart can be found here.
As stated on the website, in general, looking at the RSI axis on the right side, a high score (equal to or greater than 70) indicates that Bitcoin is overbought, and a low score (equal to or lower than 30) indicates that Bitcoin is oversold.
6. Exchange Reserve
This free Bitcoin indicator can be found on cryptoquant.com. It shows how much BTC is held in exchange wallets. When the exchange reserve is low, it indicates that investors are transferring Bitcoin out from exchanges. This means that they plan on holding their Bitcoin which often indicates price increases.
7. Stable Coin Supply Ratio (SSR)
SSR is defined by the total market cap of Bitcoin divided by the total market cap of all stable coins. When the ratio is low, it indicates bullish sentiment. That is because the increased supply of stable coins means that there is more demand for Bitcoin. On the contrary, a higher ratio is a sign for a more bearish sentiment. That is because when stable coin supply is low, less people buy Bitcoin.
8. Short Liquidations
This indicator tells you whether a sudden Bitcoin price increase is likely to be caused by investors buying back when their short position got liquidated. Here are free sources offering data for liquidations: Bybt.com and Cryptoquant.com.
Final Words On Free Bitcoin Indicators
There are other free Bitcoin indicators as well. In any case, you should use what works best for you.
But remember this:
No matter which indicators or models you use, never rely on just one or two. Always combine and evaluate several cryptocurrency indicators at the same time.
Got suggestions for other useful cryptocurrency indicators? Please share them in the comments!
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