Here is your 5 minute lesson on how to predict short term moves in Bitcoin, and even Litecoin!
The tool I use is called the depth chart. These charts are built into the gdax.com website – a sister company of coinbase.com, so you should have very little difficulty logging in and poking around if you already own Litecoin, Bitcoin or Ethereum in coinbase. If you don’t have an account, you can still look at the charts but you just can’t but with it.
The concept is rather simple. Here is what the depth chart looks like on gdax:
So, what the hell is going on? Well, it’s simpler than it looks. You are seeing the meeting spot of supply and demand for coins, in real time. Notice demand and supply meet exactly in the middle at $16,793.09.
At the bottom, from left to right, you see the price vary from $16,430 to $17,060. Those are orders for bitcoin in real time. The orders get bigger and bigger the farther you go from the middle.
HOWEVER, those are orders for coins. They have not cleared yet. If Bitcoin costs $16,763 – as shown above – your order for a coin at $16,430 will not clear.
The orders at the left for prices far below the current Bitcoin price are what I think of as ‘wishful thinking’ – they have not occurred yet, but will go through if the price drops. Orders to the right of the center are orders for coins above the current price.
Notice the left side is much higher than the right side. That basically means that there are more orders for the coin at lower prices, currently, than there are orders for coins at a price higher than the current price of $16,793.
Now, what does this mean? Basically, if you see the lower-price side [left] MUCH higher than the high-cost side [right] it is ‘dragging’ the price lower. So from this point in time you can expect to see Bitcoin go lower and some of those ‘wishful thinking’ orders will fill. Naturally, if you put in an order for a coin for $1,000 less than the current price it’s not going to clear any time soon.
Now let’s use Litecoin as an example of rising prices:
See the difference? In this snapshot, you see a LOT more orders for Litecoin at higher prices than the current one, and much fewer orders for coins below the current price. This implies that the price is rising, because there are a LOT more orders on the right for higher prices than there are orders for coins at the left for a lower price. It basically means people shopping for Litecoin are fine with getting it at a slightly higher price.
Now, also notice that there are about 11k orders on the right at higher prices, and 4k on the left at lower prices. The colors red and green are largely irrelevant: gdax treats all transactions as ‘selling’ – in the stock market selling usually means that the asset is ‘selling off’ or moving lower. In this case, all buying and selling can be looked at as selling, since somebody does have to SELL their coin onto the exchange to SELL it to you.
Now, see those “+” and “-” buttons? That will zoom you in and out of the snapshot to show you a broader range of prices:
HUGE difference, right? That’s the WHOLE range of expectations for Litecoin, from wishful thinking orders for $60 at the far left – of course there will be a lot of those – but more importantly, you see the price people are willing to pay for Litecoin taper off around $380 at the far right. That is the top of the range for expected Litecoin prices for the near-term future.
If you asked me, that high price of $380 is where Litecoin could go in a very short time if all of the orders spanning from 218 to 225 to 230 and so on, are able to clear.
These coins tend to move very quickly, but in small steps. Sometimes those steps mean skipping right past $220 and into $225, but that’s only on semi-rare occurrences where there is monster demand.
So there’s the lesson! Let me know if you need me to clarify anything.
By the way, do you own any Litecoin?
Want Bitcoin instead? Here’s a link to how to buy bitcoin, today, with as little as $100.
And I’m sorry I skipped over Ethereum. Here’s a link to how to buy Ethereum today with as little as $100.
Best of luck, and thank you for reading all of these words.