Figuring out when is the right time to buy and sell Bitcoin and any other cryptocurrency is the difference between making or breaking it in crypto. A lot of people when they first get into crypto investing and trading end up FOMO’ing into whatever cryptocurrency is trending and end up making losses. Or even if they are early, they end up HODL’ing those tokens through the bear market and never get back the gains they have once made. And if you want to make life-changing money in crypto, you have to understand that price of cryptocurrencies is coupled with the price of Bitcoin. So, knowing when is the right time to buy Bitcoin can be your biggest strength and the Bitcoin rainbow charts are one of the best indicators that you can use.
What Are Bitcoin Rainbow Charts
The Bitcoin rainbow charts are one of your best indicators when it comes to understanding whether it is the right time to buy or sell BTC. It is a logarithmic regression model that charts the historical price movement of Bitcoin and is divided into nine different colored bands. Each band in the rainbow chart denotes a different phase in the Bitcoin price as shown in the Bitcoin rainbow chart from CoinStats.
History Of Bitcoin Rainbow Charts
The first Bitcoin rainbow chart was created by a Reddit user with the username “azop” in the year 2014. It was created mostly for fun and to show the trend in the price of BTC over the years. To the creator’s and people’s surprise, what started off as some fun exercise on Reddit, turned out to be quite accurately following the price action of BTC. At this stage, the rainbow charts didn’t have a logarithmic regression model incorporated into them.
Later in the year 2014, another user “trolololo” added the logarithmic regression to the rainbow charts. It gave the Bitcoin rainbow charts a much more scientific and statistical foundation as crypto prices generally tend to follow a logarithmic regression model. The new and improved Bitcoin rainbow charts gave information about price decay, growth, slow-down, etc. Therefore, this is how we got to the present version of the Bitcoin rainbow charts.
When Is The Best Time To Buy Bitcoin
Now that we know all about the Bitcoin rainbow charts and how they came into being, let us understand how to use them. This will help you decide when to buy or sell BTC and also other cryptocurrencies of your choice. As stated earlier, the Bitcoin rainbow chart is divided into nine bands and each band signifies a different price action for BTC. Historically, it has been seen that the price of BTC has stayed within these bands. But it should be kept in mind that this is merely an indicator and not a sure-shot way of knowing what will happen in the future in terms of BTC price.
The bands are divided into dark red, red, dark orange, orange, yellow, green, dark green, blue, and dark blue. When the price reaches dark red or red bands, it means that the price has reached a high and historically it has moved down from those levels. Hence this might be the best time to sell BTC and take some profits. On the contrary, when the BTC price reaches the blue and dark blue bands, the price will move upwards from there in the coming days, weeks, and months. Therefore, this is the best time to start buying BTC and other cryptocurrencies. A brief description of color bands and what they signify in rainbow charts is down below:
- Dark Red: Maximum Bubble Territory and the price will move down from here.
- Red: Sell, Seriously SELL, the time to sell is now.
- Dark Orange: FOMO intensifies and retail moves in.
- Orange: Is BTC a Bubble?
- Yellow: The perfect zone to HODL BTC.
- Light Green: Still cheap and you can buy BTC.
- Green: Cheap accumulate buy zone.
- Light Blue: Buy zone for BTC.
- Blue: The BTC price has bottomed out and it’s a FIRE SALE.
It should however be kept in mind that the Bitcoin rainbow charts should not be used to make day trading decisions and if you are a day trader, you should rely on other indicators such as technical analysis or price analysis, etc. Bitcoin rainbow charts are the best when you are looking for the long-term price action of Bitcoin and should be used as such.
Conclusion
Bitcoin rainbow charts might have started off as a fun exercise but have now evolved into one of the best indicators and analyses of BTC price movement, and history, and hold insight into the future as well. But you should keep in mind that nothing in this article is a piece of investment advice and you should invest your money in crypto wisely as the price of BTC and other cryptocurrencies are highly volatile in nature.
