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Technical analysis holds paramount importance in the crypto industry. Being the top cryptocurrency, Bitcoin’s price estimations and price chart analysis has always had all eyes on it since it impacts the entire market.
Among a wide variety of methods like chart patterns, trend lines, and theories, the Bitcoin Rainbow Chart is one of the most popular price indicators used to estimate the price trend of Bitcoin. Let us walk you through the Bitcoin rainbow chart, how to read it, and how it estimates the price in the Bitcoin halving period.
The Bitcoin rainbow chart is one of the renowned technical analysis tools that gives a quick view of Bitcoin’s price trends in the market. It uses a range of colors to represent the price range of Bitcoin, which is the reason why it is called the “Bitcoin rainbow chart”. With the help of this chart, we cannot only know where the Bitcoin price is going but also decide which investment decision to make based on the price trend.
The origin of the Bitcoin rainbow chart has an intriguing story behind it. A Reddit user named “Azop” created the first version of this chart in the early days of Bitcoin to represent its historical price movements.
The next version of this chart was developed by another trader named “Trolololo” and made it widely popular in the Bitcoin talk forum during the 2014 bear market. He combined the rainbow chart with the logarithmic regression and created an advanced version of the rainbow chart. During the times of extreme volatility, the Bitcoin rainbow chart brought a ray of hope for investors, implying that Bitcoin’s price could increase in the near future.
The “Bitcoin rainbow chart” is a log chart and as its name implies, it is formed by nine colors. Each color represents a different price range of Bitcoin. Let us now understand how to read the Bitcoin rainbow chart based on the colors.
Since you got an idea of what a Bitcoin rainbow chart looks like and how to read it, let us now understand how you can use that information to make investment decisions. The chart not only helps you understand the Bitcoin market dynamics but also helps you identify buying and selling opportunities.
In a quick glance, the rainbow chart helps you identify the currency price range of Bitcoin. And, you will know whether its price is too high or too low based on the average price of Bitcoin. In case the Bitcoin is in the lower band, i.e., in green, light blue, or blue bands, you can conclude that is a good time to buy Bitcoin at low price. On the other hand, in case the Bitcoin price is in upper bands, i.e., dark red, red, or orange you can look at it as a selling opportunity since the price is high.
Additionally, you can also estimate the overall price trend of Bitcoin through the rainbow chart. If the price trend is moving up, you can expect a bullish trend. Or, if it is moving down, you can expect a bearish trend. All things considered, investors should not solely depend on the Bitcoin rainbow chart for making investment decisions.
Even though the Bitcoin Rainbow chart gives an idea regarding the future price trend of Bitcoin to some extent, it has its limitations. Let us break down some of the limitations of it in this section.
The Bitcoin rainbow chart is one of the widely popular price indicators to estimate the future price of Bitcoin. However, you should not completely depend on it for making investment decisions. Because, the Bitcoin rainbow chart came into existence just to spread positivity and hope about the future price increase of Bitcoin and apart from the past price trend, it doesn’t consider any other factors that could impact the market price of BTC.
DAILY NEWSLETTER
Your daily dose of Crypto news, Prices & other updates..