Understanding of technical analysis and fundamental
When we talk about cryptos, things get a little more extreme given the short-term market volatility.
As a crypto beginner, if you feel a feeling of knot in your stomach while planning to dip your fingers into the crypto markets, we fully understand that. We’ve all been there and it takes a while to learn how you can smoothly and securely approach cryptocurrency and potentially increase your wealth. In this article, we will explain how you can do this.
Making sense of the price movement
“Buy low, sell high” is the simplest, most common tip circulating in this space. But you know it’s not as simple as it sounds, otherwise, we wouldn’t have written this article or bothered to read it.
Even the most experienced traders and investors sometimes fail to identify the markets and end up making mistakes by having a few losses. And to tell the truth, there is no way to make mistakes. All you can do is learn to analyze the crypto markets so that you can identify the right opportunities.
Now, there are two ways to analyze a cryptocurrency, technical analysis and fundamental analysis.
Technical Analysis
Technical analysis is a complex process of analyzing historical and current price and volume data of assets to predict the short-term action of their prices. It can be used to analyze upward and downward trends over time periods ranging from a few minutes to a few days or weeks.
However, you must have vast experience in using technical analysis tools and studying price patterns to be able to successfully identify trading opportunities. Due to the time and knowledge required to conduct technical analysis, this method of crypto asset analysis is mainly used only by professional traders. And even their strategies are prone to mistakes, and very often, the best traders record losses on short-term trades.
If you are new to the market, we understand that learning about trading tools, price patterns, and trading strategies can seem extremely complicated. So, what you can do is start with the fundamental analysis.
Before we delve into fundamental analysis, here are the pros and cons of using technical analysis for cryptocurrency trading:
Advantages
- Huge short-term price fluctuations are common in crypto markets. If you can use technical analysis to correctly identify these price movements, you can secure huge returns.
- Technical analysis requires fewer resources than fundamental analysis because you can easily find all the relevant historical price and volume data.
- Even the technical indicators used for analysis are readily available on most trading platforms and trade-focused social media platforms.
Disadvantages
- When using technical analysis, you need to take time almost daily to study and trade your preferred cryptocurrencies.
- Short-term investments using technical analysis can be risky due to the high volatility of the crypto markets.
Fundamental analysis:
To conduct fundamental analysis of a crypto asset, you do not need to be a technical guru or trading professional. As fundamental analysis is all about finding crypto assets that have long-term potential, all you need is a little work and common sense.
If you can properly understand the economics of a project, judge the caliber of team members based on their previous experience and the existing and potential demand for their product in the crypto space, you get off to a good start.
For example, if you want to analyze a token, delve into its use case and see if it’s something useful or if the token exists to make the project a “cryptographic project.” In addition, study the distribution of project tokens, the revenue model, and so on. If you’re investing in a project that’s been around for a while, a simple Google search will show the attraction they have on the market. You can further check the team that built the project and the VCs that support it to verify its reliability.
Advantages
Fundamental analysis helps you plan your investment for the long term. And clearly, long-term investing is mostly safer for beginners than short-term trading.
You can invest small amounts in the same asset at regular intervals for a long time and let your growth intensify over time. This is a popular low-risk investment strategy, known as dollar-cost averaging.
When investing long-term, you don’t panic when markets fall or rise in the short term. You are sure that the value of your assets will increase in the long run.
Disadvantages
You miss out on the many short-term opportunities that come to the crypto market. However, you can potentially buy the asset at a lower price when purchases fall and reduce the average cost per coin you’ve paid overtime.
Start from the fundamentals
The best way to invest in crypto is through analysis. And speaking of which, technical analysis certainly has potential, but given the high risk involved, it’s not where you might want to start. The best formula is to make a combination of technical and fundamental analysis.
You can start investing in crypto with fundamental analysis and then learn technical analysis as you go. The important thing is to learn!