A Step-By-Step Guide For Technical & Fundamental Analyses

A Step-By-Step Guide For Technical & Fundamental Analyses

Since the concept of cryptocurrency and trading is quite new, it has become crucial to analyze and assess the market trends. Analyzing the overall direction where a coin’s price is moving determines your decisions about further actions. With this article, you’ll delve into two types of analysis taking the market and its trends in a different perspective with their own instruments.

Understanding the basics of the market trends may help predict the values and trends of a particular asset in crypto trading. With the bull and bear markets, the need for analysis is inevitable. Since many points may help understand the possible course of any particular coin, both quantitative and qualitative approaches may help.

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What is Technical Analysis (TA)?

Technical Analysis (TA) is an assessment of past events and activities to prognosticate the future potential market’s behavior and status. The purpose of this analysis isn’t to forecast the intrinsic value of cryptocurrencies but about predicting the possible outcomes and opportunities.

Saying the TA’s sole purpose is based on prediction isn’t true, and it’s widely used as a means for risk management. With such analysis, possible prognostication might become measurable and more defined. Crypto Technical Analysis employs various instruments and software which help to predict the possible price trends.

Two types of TA: their difference and what they do

After collecting the statistics based on the price trends throughout history, analysts try to decide the future prices and come up with a feasible trading decision. So, to make these assumptions more precise, crypto traders try to implement two types of analyses daily.

  • Short-term TA. In this type of analysis, traders assess a day and a week, focusing on smaller changes. It’s important to find out possible ups and downs that might take place in the next hour.
  • Long-term TA. Here, analysis is based on the time range from one month to a year. The purpose is to find out the probable course of any particular cryptocurrency to make a decision regarding it.

TA tools and their use

Any assumption based on the historical analysis of patterns and market fluctuations is to be made thanks to several instruments. They help to gather and assess the information and statistics to predict future patterns and price changes.

Charts

TA charts help to visualize and understand the market trends. There are several types of charts that can be employed. However, one of the main charts is a bar chart. Such bars may include the information on the following:

  • close price
  • open price
  • highest price
  • lowest price

Another type is candlesticks. They’re also widely used in TA, to identify the trends and trend lines. They give the same information as bar charts but look different. Besides, there are charts like:

  • Heikin Ashi candles
  • Hollow canldes
  • Line
  • Area

Indicators

Indicators are mathematical formulas based on the historical parameters of primary cryptos. They’re pivotal for making a decision, and there are several types:

  • Moving average: a common type of indicator. The calculations are based on a certain period of time.
  • Moving Averages Convergence Divergence (MACD): a trend-following momentum indicator. The calculations are based on the relationship between moving averages.
  • Relative Strength Index (RSI): used to assess whether the main crypto coin has been overbought or oversold. It employs an oscillator, a graph moving between extremes. With this graph, the Relative Strength Index measures the magnitude of price fluctuations.
  • On-Balance Volume (OBV): an indicator of trading momentum using volume flow to prognosticate the possible changes of coins.
  • Accumulation Distribution Line (ADL): based on the volume flow to prognosticate the possible supply and demand.
  • Average Directional Index (ADX): an indicator measuring the strength of the negative or positive trend.
  • Stochastic Oscillator: a momentum indicator comparing the prices within a particular period of time. It shows overbought and oversold signals showing in the numbers ranging from 0-100.

Time intervals

This tool is used to look and analyze the crypto technical graphs within time intervals, and thus, these charts are shown in minutes, hours, days, etc. The needed interval for you depends on what time horizon you plan to invest for.

How TA can help you in a day or swing trading strategies?

Day trading is to use daily price actions of cryptocurrency. It may take more than several hours a day for you to be active in the market to make quick decisions. However, swing trading uses swings in a very volatile crypto market to get the maximum benefit. Unlike day trading, it’s longer and not based on a single session.

Both strategies employ the analysis of the market trends, and thus, Technical Analysis helps to predict the best time to perform transactions of cryptos. With the quantitative approach and its tools, TA helps to forecast the possible variations in the price and upcoming trends.

What is Fundamental Analysis (FA)?

Fundamental Analysis (FA) is a means of assessment of crypto’s valuation. It’s about determining whether a particular price of the asset is fair enough. So, it includes economic and financial factors, like macroeconomic events. These may be industry conditions or the state of the economy.

With such analysis, traders may determine if the asset is undervalued or overvalued. To reach conclusion in FA, analysts employ on-chain metrics. It may include the following:

  • hash rate of network
  • address numbers
  • top holders
  • analysis of transactions

Why is it important to rely on your own FA?

Trading with your coins based on the market trends and volatility is challenging. Thus, there’s a need to collect the required info before you make a decision. Yet to use quantitative methods may not be easy. Still, you may understand what triggers the changes.

So, it’s only you who know what suits you most. Thus, your personal Fundamental Analysis is the best option while trading since other traders see and judge the market based on their experience, knowledge, and backgrounds.

Where you can get into for Fundamental Analysis?

Having your own FA depends on the source you employ. The more reliable sources you have, the better decisions you’ll make. Don’t forget that the wrong conclusion may lead to losses. So, what can be used as proper sources?

News articles

You might find good source platforms offering service, market trend recordings, and explanations of such trends. The best you might find online might be Cryptocurrency News, CoinDesk, Coin Telegraph, etc.

User forums

Community forums are great places where you may get information and news about recent trends, scams, new tools, etc. There are forums like Crypto Compare, Bitcoin Talk, Quora, and Medium where you may start your first steps in your FA.

Trading platforms

The platforms where you trade with your coins can be another source of information. They have annual announcements about their results, performance and volatility of the market, and their development.

Why supply and demand are important factors?

If you have enough sources to start crypto trading, it’s a good idea to search for supply and demand of that particular coin you’re interested in. Much depends on how this coin is supplied and what demands exist at the time. Blockchain records may give useful data on transaction speed, traded amount of your coin, and how many traders are involved.

Based on this data, you may decide how popular your coin is. It’s not only demand that defines the success and popularity of the coin, but the supply is also key. Coins may be released annually, or they can be mined. The problems with mining may show what the future holds for that coin.

Historical trends along with future ones may affect the result of your crypto trading decision. Since crypto trading is a recent activity and not centralized, some governments may take some actions against it. So, stemming from this, your decision may change radically. Thus, gathering information will be helpful.

How FA can help with the HODL strategy?

Fundamental Analysis gives information on the basics of cryptos, circulation, the supply of the coins, recent developments, upcoming events, underlying and coming technology, etc.

For HODL, it’s more important to have more qualitative research methods to decide about your crypto. Thus, with DYOR (do your own research), you gather and assess information before making a decision. For HODLers, those who buy and hold their coins for a longer period in the hope to sell for a more profitable price, FA is an indispensable tool in predicting the possible period for predetermined prices to come.

What is better, Fundamental or Technical Analysis?

Choosing your analysis depends purely on what strategy you plan to employ. TA uses historical trends with different tools to predict the possible price shifts, whereas FA uses more qualitative methods to prognosticate your assets’ value.

For example, if you want to buy your coin and want to know about its supply and demand to understand it better, FA can be much more useful. Or in the case of swing trading, TA is an indispensable tool.

Can you use both Fundamental and Technical Analyses?

The reality of analyses is that in the market, the more complex your approach will be, the better outcomes you may expect. So, it’s common to combine both methods. Such practice is known as confluence.

Is Technical Analysis a substitute for Fundamental Analysis?

Can TA be used instead of FA? Given their difference in analysis and predicting the possible outcomes and trends, it’s hard to say that one can be used in the place of another. It’s better to say that both of them should be used together to make future and personal prognoses for your crypto trading.

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