People follow two main methodologies when they trade Bitcoins (or anything else, for that matter): fundamental analysis and technical analysis.
Fundamental analysis looks at the big picture. In Bitcoins case, fundamental analysis evaluates Bitcoins industry, news about the currency, technical developments of Bitcoin, regulations around the world, and any other news or issues that can affect the success of Bitcoin.
This methodology looks at Bitcoins value as a technology (regardless of the current price) and at outside forces (in order to determine what will happen to the price). For example, if China suddenly decides to ban Bitcoin, this analysis will predict when the price will probably drop.
Technical analysis tries to predict the price by studying market statistics, such as past prices movement and trading volumes. It tries to identify patterns and trends in the price, which may suggest what will happen to the price in the future.
Technical analysis assumes the following: Regardless of whats currently happening in the world, price movements speak for themselves, and tell some sort of a story that helps you predict what will happen next.
So which methodology is better?
Well, no one can accurately predict the future. However, a healthy mix of both methodologies will probably yield the best results.