Everybody knows by now that it is not possible to dive into the crypto market without a plan. There should be an analysis technique to stick to if you want to reach somewhere. So, we are going to discuss two major techniques that have conquered the markets: Fundamental and technical analysis.
Each of these techniques has its own merits. While technical analysis has proven to be efficient, especially for seasoned investors, fundamental analysis is helping many reap millions.
Indeed, the best way is to combine these two to achieve a convincing result, specifically when it is about crypto space, where nothing can be predicted.
Deep In Fundamental Analysis
Generally, trading is nothing more than evaluating the value of an asset to determine whether it is worthwhile either in the short or long term. In this regard, fundamental analysis is called the process of measuring the value of an asset based on related economic or financial factors.
This process usually suits long-term investments better since it supposes to measure the intrinsic value of an asset by evaluating all the tangible and intangible aspects of the investment, using publicly available information.
And of course, as with any other analysis, it aims to make more profit out of an investment, determining whether the investment is undervalued or overvalued.
Looking At Technical Analysis
On the other hand, technical analysis is a technique to assess the value of an investment, using statistics and trends of that asset’s price movements and trading volume.
The story behind technical analysis is about the belief that past price movements and market activity of a specific asset can be used as a valuable source of information to predict the future state of that asset.
People who lean on the technique usually use math equations, charts, and graphs to extract trends and patterns that support either a buy or sell signal. But since there are no specific criteria for a single asset, a technical analyst would measure different signals in comparison with other technical indicators that support a similar narrative.
To put it concisely, whilst a fundamental analyst concentrates on the company’s intrinsic value and measures the company’s capacity to increase earnings as well as that company’s assets, a technical analyst will only look at the price history and trading volume of the asset. And when fundamental analysis encourages the investor to search out a company’s inherent value, technical analysis is concerned with methods that forecast the price action of the asset.
Technical Analysis Indicators
The roots of technical analysis are its indicators. They include pattern-based signals, which are produced by the price and trading volume of an asset and help traders learn and predict future price movements of a specific asset.
These indicators help a trader study and analyze the historical price data to distinguish desirable entry and exit points.
All in all, technical indicators are put into four categories, including trend indicators, momentum indicators, volume indicators, and volatility indicators.
As it can be understood by its name, trend indicators suggest the overall direction of the market. These indicators which are also called oscillators move between high and low values. Moving Average Convergence Divergence (MACD), Parabolic SAR, and parts of Ichimoku Kinko Hyo are three trend indicators.
Meanwhile, momentum indicators show the strength of a trend and are also used to predict both trend and price-changing movements. Average Directional Index (ADX), Relative Strength Index (RSI), and Stochastic Oscillator are some momentum indicators.
The indicators which consist of tools to determine the intensity of a buying or selling market are the volume indicators, including the on-balance volume (OBV) indicator, the volume indicator, the Klinger Volume Indicator, and the Chaikin Money Flow indicator.
The final indicator class is volatility indicators, which help traders to distinguish how frequently the price of an asset is changing within a given period. That is to say, the faster the price change, the more volatile it is. Bollinger Band is an example of these indicators.
Fundamental Analysis vs Its Technical Rival
You may have understood how these two techniques are different but bear in your mind that most successful traders use a combination of both fundamental and technical analysis since each of them has its own pros and cons.
Above all these, a great deal of skill and experience is needed to combine both techniques. Since fundamental analysis is less complex and needs fewer technicalities, novice traders tend to use it, while professionals count on technical analysis.