A lofty long-term Bitcoin price prediction may mean profits tomorrow, but there's a short-term technical forecasting chart that can deliver profits today.
The chart for 2017 has nailed each new major high. And it predicted the next peak at just over $7,400, which was nearly reached today on the CoinDesk Bitcoin Price Index ($7,355.35). The Bitcoin price has since slipped back below $7,000, to about $6,900.
As the run continues - the price of Bitcoin is up 60% over the past month - it raises the question of how long this rally can hold before the next pullback.
Forecasting these turning points is where this piece of technical analysis can help us - and it couldn't be any more straightforward...
A Bitcoin Price Prediction Based On an Ancient Idea
I'm talking about Fibonacci sequences.
First discovered by Indian mathematicians in 200 B.C. and articulated by Italian mathematician Leonardo Fibonacci in 1202, these patterns have proven useful to investing analysts.
In particular, technical analysts use Fibonacci charts to predict upside targets as well as downside targets where an investment will find support.
Editor's Note: Money Morning knows cryptocurrencies. We've been writing about them since 2011, far longer than most other news sites. To get 100% free, real-time alerts sent to your inbox, sign up here.
Last year, technical analyst JC Parets, founder and president of All Star Charts, started making Fibonacci charts of Bitcoin. But it was Bitcoin's uncanny adherence to its Fibonacci levels this year that really got his attention.
"Talk about Fibonacci - I mean, dude, does it get any cleaner than this?" Parets said during an Oct. 13 presentation at Stocktwits' annual Stocktoberfest West conference. "I mean, guys, this is like to the penny."
Here's the chart Parets was talking about:
Ever since the Bitcoin price regained the 2013 high of $1,220.50, the Fibonacci sequence has provided a clear guide to where it's going next and where support would reverse downturns.
To understand what's happening here, you need a little background on how Fibonacci sequences work. It's a pretty simple concept.
Basically, a Fibonacci sequence is a series of numbers in which the next number in the series is found by adding the two previous numbers. Here's the most basic Fibonacci sequence:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377...
This might seem a mundane exercise but for one thing - the ratio between any number to the one preceding it is always the same: 1.618 to 1. This is known as the golden ratio.
Technical analysts create charts to look for patterns suggested by the golden ratio.
Let's see how this works in Parets' Bitcoin chart...
How the Golden Ratio Gets Us to a Bitcoin Price of $7,400
In technical analysis, an investment's tops and bottoms determine the starting numbers in the Fibonacci sequence.
In Parets' Bitcoin chart, he uses the $1,057 difference between the 2013 peak of $1,220 and the 2015 trough of $162.70. After the Bitcoin price regained the previous peak of $1,220, Parets applied the golden ratio to $1,057.71.
Energy Breakthrough: One gallon of this new "crystal fuel" could get you from New York to L.A. and back... seven times! Read more...
So, the first level of $1,874.165 is a 161.8% "extension" of $1,057.71 ($1,711.374) beyond the $162.79 trough. The next Fibonacci extension is 261.8% of $1,057.1 ($2,760.08) beyond the trough, which puts you at $2,931.875. The Fibonacci sequence is represented by the percentage increases.
So the next Fibonacci increase is 261.8% plus 161.8%, which is 423.6%. That math gives you $4,643.250.
The last step in the chart is $7,412.334, an extension of 685.4% beyond the trough. That's the peak we've nearly reached now.
But having these Bitcoin price predictions and knowing what to do with them are two different things.
Here's how a Fibonacci chart can make Bitcoin trading more profitable...
How to Use a Fibonacci Chart to Trade Bitcoin
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.