Technical analysis provides the necessary tools to anticipate if there is a bear or bull market on the horizon. There are many indicators that can be employed to determine whether a cryptocurrency will go to the moon or not. But in this analysis, we will only focus on how a series of golden and death crosses between the 7, 30 and 50 moving averages (MA) have been predicting the future of Ethereum (ETH).
‘Those who do not learn history are doomed to repeat it.’
– George Santayana
Ethereum Technical Analysis
Before we get into details, let’s define the three main indicators used in this analysis: the moving average, golden cross and death cross.
A moving average is an indicator that analyzes different data points by generating a sequence of averages. It is described in Investopedia as a tool to “help smooth out price action by filtering out the ‘noise’ from random short-term price fluctuations.” Since it follows a trend, it is based on past prices. Even though the MA is widely used to identify support and resistance points, it can also determine the beginning and the end of a bullish trend.
A golden cross occurs when a short-term moving average crosses above a long-term moving average signaling a potential bullish breakout. Many traders see this pattern as one of the most definitive and strong buy signals that could start a long-term bull market.
On the other hand, a death cross appears on a chart when a crypto’s short-term moving average crosses below the long-term moving average indicating the potential for a major selloff. According to Investopedia, “it is a reliable predictor of some of the most severe bear markets of the past century: 1929, 1938, 1974, and 2008.”
Let’s get started.
Seven months after Ethereum was released on July 30, 2015, it experienced its first golden cross when the 7 and 30-three-day moving averages went above the 50-three-day MA between January 7 – 13, 2016. If we measure the entire move from the cross to the June 2016 all time high, ETH went up around 2,350% (data fed from Poloniex).
However, this analysis will only be focused on golden crosses as buy signals and death crosses as sell signals. So the move from the January 2016’s golden cross when ETH was trading at $0.93 to the October 2016’s death cross when it was trading at $12.67 represented a 1,360% gain.
If the death cross could be considered not only as a take profit point from a previous golden cross, but also as an opportunity to short Ethereum, then there was a chance to make another 17% from the October 2016’s death cross to the March 2017 “holy grail.”
And I call it holy grail because the opportunity that presented in March 2017, based on this analysis, had to come from heaven. The bull run from March 2017 to April 2018 was astronomic and represented a 7,150% gain that could have been achieved by only trading the crosses of the moving averages.
April 2018 marked the beginning of the Ethereum bear market. A bear market where we saw this cryptocurrency fall from an all time high of $1,470 all the way down to $75. Many ICOs that were funded with ETH went bankrupt, along with many individuals who got late into the game and did not know when to sell. This has been recorded as the worst decline that Ethereum has experienced since it was released into the public back in 2015.
Even though this was a devastating move for many, those who were trading the death and golden cross were able to profit around 80% from this move because they knew when was the right time to short the market and when to take profits.
As history tends to repeat itself, on March 23, 2019, after a bear market that lasted almost one year, the 7-three-day moving average moved above the 50-three-day moving average and on April 1, 2019, the 30-three-day moving average also moved above the longer-term MA giving us a golden cross that could mark the very beginning of Ethereum’s next bull run.
Based on ETH’s golden and death cross history, one could speculate that the next bull run could take an upswing between 1,360% and 7,150%. If this scenario is correct, we could see this cryptocurrency trading between $1,700 and $10,000 by the time another death cross develops.
Is it time to buy Ethereum for a long-term trade?
Well, only based on the moving averages on the 3-day chart it seems like the time to go bullish is now, but before you do, you must take into consideration your own analysis and other metrics that could validate or invalidate this theory that I just presented to you. Always remember to set your stop-losses first before you think about the profits that a trade like this could make you.