Trading and investment require a detailed understanding of the asset in question and the many factors that may affect its value in the market. And this ‘understanding of the market can only come after you have taken a swim in the deep end of the data pool. Cryptocurrency market analysis requires so much more than watching YouTube videos and reading tutorial blogs on how to master the crypto market. Trading in cryptocurrency may not require you to know everything about the company/protocol to the ‘t’ however, you must have a clear understanding of the underlying coin/stock. This blog will help you understand the basics of crypto market analysis and help you figure out how these techniques can help you in getting the biggest bang for your buck.
Simply put, technical analysis of the crypto market involves making investment decisions based on market data and its interpretation. Trends and patterns in the market are mapped to understand what the other players in the market are doing in order to determine the price targets that one should adhere to while placing their own trades.
Just like any other analytical framework, Technical Analysis works on certain assumptions:
· The market discounts everything, which means every factor related to the stock/coin – hashing difficulties, government regulation, and even tweets are capable of influencing prices.
· Prices always move in trends, and once a trend takes hold, stock/coin value will follow the expected directions.
· History repeats itself and emotion often ends up beating logic when it comes to market movements. Market participants react similarly to certain situations and influence prices accordingly.
There are many Technical Cryptocurrency Analysis indicators that can be used to study market trends and price movements. Candlestick charts, Support and Resistance levels, Relative Strength Index, Average Directional Index, Moving Averages, Trend Lines, Cup and Handle Patterns – the list goes on and on. You can choose the method based on your preference and trading style.
What are the benefits of Technical Analysis?
· Spotting Trends: Charts and tools can help investors spot uptrends, downtrends, and sideways movements in prices thereby, helping to predict opportunities to buy in or sell stock/coins.
· Understanding Momentum: Momentum is an important factor in cryptocurrency analysis and predictions it helps traders to stay on its side. If a stock/coin breaks above the resistance level or below the support level, it indicates a gathering momentum in the market. And riding this wave is how money is made.
· Timing: Entering and exiting from a trade requires precisely timed moves which can be planned with the help of candlesticks or moving averages.
Cryptocurrency Market Analysis – By Fundamentals
What is Fundamental Analysis?
This format of crypto market analysis determines the intrinsic value of a stock/coin which can be taken as an objective measure of its worth. It involves a deep dive into the crypto asset itself and an evaluation of whether it is undervalued or overvalued in the market. This system helps traders, especially those who do not possess much technical analysis experience, to read market movements with confidence and place profitable trades.
With crypto, all traditional metrics that may be analyzed to understand the worth of a stock goes out the window. There isn’t a single company/entity meant to own the project and hence, data like solvency reports, liquidity ratios, debt analysis and the like are non-existent. Instead, crypto stocks are publicly audited on the blockchain and the founding team must keep investors informed of their roadmap ahead.
There are a few factors to consider with the Fundamental Analysis of any crypto stock/coin:
· Blockchain Metrics, which can now be accessed through a range of API-based tools to gain actionable information such as active users, Hash Rate, total transaction value, and such, help to make informed investment decisions.
· Financial Metrics, which offer a quantitative picture of the intrinsic value of the stock/coin in question. It involves studying the market response, surrounding factors, liquidity, trading value, circulating supply, and so on.
· Project Metrics, which qualitatively assesses the value of crypto stock such as its purpose and operation format. Background analysis, white paper assessment, competitor analysis, tokenomics, and utility are important factors here.
What are the benefits of Fundamental Analysis?
· Value assessment: Through Fundamental Analysis, an investor applies various research and interpretation tools to determine the true value of the stock/coin in question so as to make smart investment decisions.
· Trend assessment: This format of analysis also helps to visualize the patterns in which the crypto market fluctuates for a particular project. Understanding trends in pricing over a period of time helps to plan one’s investment roadmap.
· Trade assessment: Understanding the fundamentals of a stock and its market placement help investors in planning their trade entry and exit points. It's not that you may never experience any losses, but you can definitely minimize them by fundamentally analyzing the cryptocurrency market live.
Cryptocurrency Market Analysis – Chart-based predictions
There is always a method behind the madness which is the cryptocurrency market. And that method is what you need to spot through reading charts and graphs. Candlesticks help you see full details of the price movements of a particular crypto stock/coin over the course of one trading session. These can then be used to monitor fluctuations and make comparisons over longer periods of time. Candlestick charts eventually create certain shapes to indicate trends like the hammer candlestick, shooting star, or hanging man. Once you learn how to spot them, you can spot and unlock opportunities to make trades and gain profits along the way through cryptocurrency investment.
The one fact that drives the cryptocurrency bull is retail FOMO. Pumps always come with dumps and traders often make investments based on sentiment. And the result in most cases is loss and disaster. Avoid these mindless trading patterns with smart cryptocurrency market analysis techniques to gain the most from your investments.