The notion is that an investor’s psychology matters, and that investors tend to react to certain events — like a big price gain or drop — the same way time after time.
To be sure, charting has plenty of detractors.
Despite charting’s shortcomings, it’s taken on an outsize role in the cryptocurrency markets — in part because investors don’t have much else to rely on.
Among the most important trend indicators for chart followers are support and resistance.
For instance, if you pull up a chart of Bitcoin in 2021, you will see what looks like the profile of the Swiss Alps.
Then there is another series of higher peaks, reached in March, April and mid-October.
One thing that may stand out to even a casual observer: The steady rows of peaks are consistently close to $10,000 milestones.
That is, until Bitcoin gets close enough to $70,000 or $80,000 that those prices seem like a real possibility, and a new number begins to appear in an investor’s minds’ eye.
And, of course, all this talk about “resistance” can become a self-fulfilling prophecy.
While it’s not hard to spot the basic patterns of resistance in Bitcoin’s past rallies, so far, the cryptocurrency has always eventually pushed higher.
In the last 12 months, the algorithm’s investment strategy has risen sixfold, Hogrefe claims, surpassing the returns of Bitcoin itself.
Still, for most investors, there can be a world of difference between spotting the occasional pattern and using that observation to actually make money trading stocks, crypto or anything else.
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