Technical analysis is important, but right now I think that one should not rely exclusively on chart analysis and indicators to predict Bitcoin's price movement. For example, at the end of July and mid-August some indicators, such as MACD or RSI, clearly showed a trend inversion that did not happen.
One of Bitcoin's unique features is the mining system and I think that, right now, this plays an important role in price analysis. After Bitcoin hit $30 in July, many people invested in mining rigs and difficulty rose a lot. Those people are looking forward to get their investment back and, since Bitcoin is extremely infalctionary right now (50 new coins every 10 minutes), there is a big selling force at the markets.
If miners sell 30 coins out of each block, we need around 1 million dollars per month to keep the price at $5.
I also believe that the $30 spike was caused by media exposure. Such a small market can be easily manipulated by a few serious investors.
Main points:
- Use Technical Analysis carefully.
- Consider the number of coins per block and the money invested by miners
- Keep an eye for important news that may attract new investors to the market
To finish, here is one stock behaviour that I could identify: the dead cat bounce.
A dead cat bounce is a trading term used to define when a stock in a
severe decline has a sharp bounce off the lows.
This smells like investing advice to me--I doubt you'll find an expert on that here. – eMansipater – 2011-09-14T01:48:58.870
@eMansipater not really financial advice (or at least that was not my intent) as more of a technical question (since my interest is mostly academic) of the sort one might ask at quant.SE. Unfortunately, I can't ask that question there, since it requires much more knowledge about bitcoin and its users than it does about quantitative finance to answer... however, if I don't receive an answer here and find a good way to rephrase the question for a more general audience, then I will cross-post to quant.SE.
– Artem Kaznatcheev – 2011-09-14T17:19:09.260@eMansipater if you have specific comments on why it sounds like investing advice, then you are welcome to edit my question or make suggestions and I will try to edit the question into better form. – Artem Kaznatcheev – 2011-09-14T17:20:39.863
I guess I'm inclined to just take "Bitcoin differs from standard markets in many ways" as an unsupported assertion, and then the ensuing "How can I predict?" sounds like any investor wanting to predict the performance of a stock/commodity/etc. It seems like being able to prove that first claim in any particular respect would itself yield your answer. – eMansipater – 2011-09-14T18:39:34.123
See my similar question on Personal Finance and Money - Stack Exchange from last June: What technical indicators might be appropriate for analyzing Bitcoin currency trading
– nealmcb – 2011-11-23T19:07:41.127