How To Use Foldback Pattern To Predict Future Cryptocurrency Price Levels
Financial markets, including stock and cryptocurrency exchange platforms, are among the most lucrative investments of today. However, should anyone assume that investing in financial markets is easy? No! Investing in crypto markets is among the most complex investment options today.
Many rookie investors make the mistake of inputting emotions in their investment decision-making in crypto and lose fortunes. However, that has always been a catalyst of business failure, especially when trading cryptocurrency.
Fortunately, there are various ways an investor can understand the markets and decide the right time to make their investment. Top on the list is by leveraging a system called foldback patterns. What is the foldback pattern, and how can an investor use it in determining future prices?
What is a Foldback Pattern?
A foldback pattern is a market analysis technique leveraging historical price data to predict the market’s future. Popularly known as mirror image foldbacks, this technique is where the charts operate on the inverse of their initial moves. It is primarily the past price action retracing.
Although not commonly known, this method can be a good tool in predicting the future of an asset’s price. In foldback, the market is believed to trade in a particular structure. The foldbacks take the exact opposite of what the prior data indicates but follow an almost similar structure.
As shown in the image, the pink-colored section shows past price formations, and the green-colored section is the mirror image of the same. There are many similarities in the swing patterns in the two periods, but the formation is the reverse of the preceding period; they are almost a mirror image.
How can an investor use foldback patterns to predict future prices of crypto assets? Here are four key steps to follow.
Step 1: Identity The High and Low in the Preceding Period
The first step to using the foldback pattern is identifying the high and lows of the prices of an asset in the selected period. The price begins to take a new course at the lowest price, thus forming a reverse pattern of the preceding market charts.
In the image above, X is high, and Y is low before the pattern reverses. Notice that, at point Y, the prices begin to form a new pattern.
Recently, platforms have introduced tools that make it easy for investors to copy the pattern in their clipboards. After identifying the swing structure(X-Y), copy using the tools and follow the next step.
Step 2: Reverse the Price Pattern and Past it on Your Trading Charts.
After copying the price actions using the tools, you now need to invert the lines and paste them on your trading charts. The right point to paste the trading charts in invert is the point you selected as your turning point in our case point Y.
You will notice that the patterns are almost similar in action and could help predict the coming prices. Looking keenly, you will notice that there are swing lows and highs in the charts, which follow the past patterns.
Step 3: Predict The Price
Looking at the charts, you can predict the prices of the assets in the future. For instance, although the prices will not be exactly what you predict, you will know the possibility of changing course in the prices.
The highest price in case the foldback line is ascending could be a prediction of what to expect. Therefore, foldbacks can help an investor predict the immediate prices of an asset and make the right investment decisions without focusing much on emotions.
The prices could reach point Z; thus, investors can put their money earlier, before the prices shoot. Once the prices complete the pattern, the foldback ends, and a new pattern begins.
Step 4; It’s a Continuous Process
Forecasting using foldback patterns is a continuous process in the marketing charts. Therefore, you should ensure you do the regular analysis of the market after the ends of a foldback pattern. As you continue using the foldback pattern analysis method, your technical market knowledge will increase vastly.
Limitations of Foldbacks
Even though a very excellent way of predicting prices, Foldbacks are limited in several ways. The major one is the identification of a foldback. Most crypto investors do not have technical knowledge of the market. Therefore it’s tough for them to identify where a foldback begins and ends and how it forms.
Secondly, Foldbacks are not used to determine the future prices with accuracy; instead, they work more on showing the direction and formation of market charts and prices.
The foldbacks are excellent for assets with regular price movements and not assets with an almost constant value. Cryptos, due to their high volatility, can be beneficiaries of the foldback pattern formations.
After looking into forecasting, it’s clear that foldbacks can be great tools for predicting future prices. There are several things an investor needs to do for effective price prediction using foldbacks. Foremost, the investor should identify the highest point and lowest point of a pattern preceding a reverse. The investor can copy the patterns, paste them in a reverse format on the charts, and see where the prices could be headed.
Generally, predicting using foldbacks requires keen attention to the market since persons without market analyst backgrounds can’t quickly identify them. However, once an individual perfect using foldbacks, their investment life will be easy.