DigiByte: Chart Analysis in 6 Phases
Last time, I made a fundamental analysis about DigiByte. Now, I will guide you through the same time span (1st June to 11th June 2017) and make the chart analysis for each phase. It will give you a very good understanding how both chart and fundamental analysis are influenced by each other. The benefit of chart analysis is that you only use the chart to determine the future value. In real world scenarios, you will usually not have the time to inspect all past news of a crypto currency, which is fundamental analysis. You will rather just want to determine the future value by looking at the chart and at how the value developed and will develop.
Chart Analysis of DigiByte
Let’s split up the development of the two weeks in six phases. Each of them we will explain with chart analysis. But before that, let’s recap the fundamental analysis a bit.
In the fundamental analysis, I outlined the start of the coin with a hype. The hype came due to news that the team of DigiByte was participating in the Citi® Tech for Integrity Challenge on the 9th of June 2017. Big companies like IBM, Microsoft, Facebook, LTP, PWC, Clifford Chance und MasterCard were part of that event and gave DigiByte an unusual chance to make a breakthrough and become the first accepted crypto currencies for these companies – or at least get a strategic partnership with them. Nearly at the same time, the rumour arose that DigiByte might get a partnership with Mojang (the developer of Minecraft). Being the crypto currency in Minecraft would have been “wooooaah” for DigiByte.
Especially while a crypto currency is up and about, going on events and spreading their idea, the value of that currency is raising. There is the hope that the currency will come out big and the value is raise massively due to the surge in popularity. More investors will pay attention and even more people join in. All of this also explains phase one (in fundamental analysis) of the continuous uptrend.
Phase One: Uptrend
The coin got into an uptrend due to the continuously raising interest of people. Actually, it is comparable with Bitcoin in a way. An uptrend is defined by a consecutive sequence of high and low points (HP and LP). However, every HP must be higher than a previous HP and every LP must also be higher than the previous LP. By the way, this implies, that an uptrend can only be detected after multiple HP and LP.
Phase Two: The Hype
Since the coin was for a proper time span in an uptrend, it caught the attention of more and more people. This results in quite a raise after a while, like a snowball system. Even more people want to have part of the coin and some are even willing to pay any price at this time. This is also a very typical pattern in crypto currencies, because the investors are currently still primarily amateur investors, who are trading with emotions.
Phase Three: The Correction
After the hype is steady for a (short) period of time, a correction in the value is starting. The correction will start, whenever the price is reached where either people are not willing to pay more or when early investors jump off the train. The correction is usually quite strong in cryptos, since the hype before was quite strong. You can easily win or loose 30% within an hour. Whenever a value is correcting, there are sometimes minor contrary trends. So, the value will not just go straight down. It is more of a staircase pattern with an obvious downtrend.
Phase Four: Stability
After a hype and its correction, most cryptos are suddenly stabilising and do not move a lot. This stability is called sideway trend. The time span for the sideway trend can be approximated by chart lines like funnels or cones. However, no one can see the future. So it will always be just an approximation. The important part of this phase is to show decisiveness: either go in or out. A quick trading forth and back will result in losses, although the price is stable, since you also have to pay trading fees. Also, when trading here, you usually will start to trade with emotions, because just a little bit higher movement within this time span is making people nervous and they start to trade with thoughts like “Oh no, now the value will decrease!”, “It is raising now! So, it will start to go on an uptrend now!”- a no-go! As mentioned, the crypto market is highly occupied by amateur investors. Better just stay in the coin and setup a stop-loss if you are unsure.
Phase Five: The Awakening
After being in a stable phase for a bit, the start of in a trend direction will be determined. In this case, DigiByte is starting an uptrend. But have you remember what I said about uptrends? Uptrends can only be determined after multiple HP and LP. A single strong bullish candle is not enough. However, in the case of DigiByte, I guess a lot of market orders have been executed after the price passed a specific threshold of raise. This resulted in this quite strong raise. Usually, when a coin is passing that point, it will raise even further. But you never know in cryptos…
Phase Six: The Turn
DigiByte made a quite interesting turn in this scenario. After having its awakening, the value rose quite a bit. But, with a very minor downtrend after that, panic sells started. Everyone who was already unsure about the value trend in phase four, started to panic when the value decreased just a bit again after the awakening. This resulted in a lot of sells. Now all people who already made profits with DigiByte decided to leave. That results in even more sell orders. After the line of stability from phase four had passed, the belief was a bit scratched and even more was sold. It is important to have either a trailing stop or at least a stop loss order just below the stable price in phase four.
In this case, the actual reason for the quick loss of value were the news, I have explained in detail in the fundamental analysis. Read this and you will see that chart analysis is cool for a quick and short overview of the current trend. But to understand more about the future value, you definitly have to include the news.
How did you like this analysis? Let me know it and I will try to improve on the next one 🙂