WHAT ARE FUNDAMENTAL ANALYSIS & TECHNICAL ANALYSIS?

Hi ours young investors! This article will bring many useful analysis concepts to you! Let’s find out together with us – HoldingB team!

What is fundamental analysis (F.A)?

Fundamental analysis can be understood as methods to evaluate the core metrics and proposition of an asset, in this case the world of digital money, cryptocurrencies. Fundamental analysis is more than looking at the price of a cryptocurrency, but rather delving deeper into the external factors that could impact the product, such as macro and micro factors.

Fundamental analysis is about looking at all the available data of a financial asset. This can include countries’ sentiment towards the currency, how many people are using the digital cash every day, or even the team behind the project.

The process of fundamental analysis can be started by taking a wider outlook before narrowing it down and focusing on smaller details. You would start by evaluating the projects’ market cap and how healthy the ecosystem is in terms of daily buy-in or sales data. You could then look at the projects’ marketing approach, the team, and what the public has to say about the token, for an example of strategy.

To put it simply, looking at what the media is saying about Bitcoin would be an in-depth outlook, whereas just looking at the price would be considered more of a broad approach, all these factors work together to create fundamental analysis.

There are three metric areas of analysis that investors generally look at, so let’s take a deeper look at those fundamentals.

How To Do Fundamental Analysis Of Cryptocurrency

These are just a few of the many possible ways to do fundamental analysis of cryptocurrency and analyze it before investing.

Target Market

One should consider the target market, whether it is a small or a large market. A larger market doesn’t mean that it is good to invest. Even if it is small, you still have to consider other factors because some small markets are more receptive than the large market.

Founders and Developers

Know the people who created this project, who they are, and their respective roles. Because we cannot deny that many people are greedy to make money for themselves, it is necessary to know the persons involved in the project before you invest in avoiding such frauds and scams.

WhitePaper

The developer creates this technical document or report. This is a useful basis, whether it is good to invest or not. The paper contains detailed statements about cryptocurrency and its essential aspects.

Community and Reviews

Forums, reviews, and other forms of community help you in deciding whether to invest in a certain cryptocurrency or not. However, let us not forget to filter those negative or positive comments. Sometimes negative comments are telling the truth. Do not rely too much on positive reviews. This might be one of the false impressions.

Roadmap

Roadmaps are detailed plans about the cryptocurrency, which is essential during the implementation; it will show what will be done and what will happen next. Evaluate the roadmap thoroughly, as it will help you determine if the crypto is worth investing in or not.

Development and Releases

You also have to know the development and release of that crypto company. There are many iterations to address many issues; bugs are identified, and different issues may arise in a real-world environment. By tracking the development, you will know the algorithm used. Releases are also important because they will update the recent development of the crypto company.

Regulation

When a certain cryptocurrency is observing the laws and regulations, this will soon give a ripple effect. Somehow, it will lead to a good effect on the market price.

Potential Roadblocks

An investor must know the potential roadblocks that can cause a company to go wrong in terms of laws, copyright issues, and legality. So before you invest, you have to analyze the projects and secure relevant information.

Market Cap

An investor also needs to consider the market cap or market capitalization. The occurrence of market capitalization in every related blockchain is used to measure a certain cryptocurrency’s size. For this case, you’ll be able to see the potential growth if you observe a certain cryptocurrency through its market cap. However, it doesn’t guarantee that a larger cap may have larger growth. It also means that the market cap may not value current money in the market.

What is Technical analysis (TA)?

Technical analysis (T.A) uses statistical trends collected from historical price data to identify opportunities for profitable short-term trades. TA has been widely used in traditional investing, and the approach in crypto remains the same.

At its core, technical analysis is just basic economics wrapped in complex and technical sounding terms – it’s the essentially the study of supply, demand and price movements to predict trends and make a profit over an investment both rising or falling in value.

CORE PRINCIPLES OF TECHNICAL ANALYSIS

Movements in price are not ever random but the result of certain short or long-term trends which can be identified & isolated to make a profit.
History tends to get repeated. It is possible to predict market psychology. Traders sometimes react the same way when presented with similar stimuli.
‘What’ is more important than ‘Why’ – TA is concerned with the price of a coin (supply & demand) rather than the dozens of variables that influence its price.

SEVEN Common Mistakes in Technical Analysis (TA)

Not cutting your losses

Let’s start with a quote from commodities trader Ed Seykota:”The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.”

Overtrading

When you’re an active trader, it’s a common mistake to think you always need to be in a trade. Trading involves a lot of analysis and a lot of, well, sitting around, patiently waiting! With some trading strategies, you may need to wait a long time to get a reliable signal to enter a trade. Some traders may enter less than three trades per year and still produce outstanding returns.

Check out this quote from trader Jesse Livermore, one of the pioneers of day trading:

“Money is made by sitting, not trading.”

Revenge trading

It’s quite common to see traders trying to immediately make back a significant loss. This is what we call revenge trading. It doesn’t matter if you want to be a technical analyst, a day trader, or a swing trader – avoiding emotional decisions is crucial.

Being too stubborn to change your mind

If you’d like to become a successful trader, don’t be afraid to change your mind. A lot. Market conditions can change really quickly, and one thing’s a certainty. They will keep changing. Your job as a trader is to recognize those changes and adapt to them. One strategy that works really well in a specific market environment may not work at all in another.

Let’s read what legendary trader Paul Tudor Jones had to say about his positions:

“Every day I assume every position I have is wrong.”

Ignoring extreme market conditions

There are times when the predictive qualities of TA become less reliable. These can be black swan events or other kinds of extreme market conditions that are heavily driven by emotion and mass psychology. Ultimately, the markets are driven by supply and demand, and there can be times when they are extremely imbalanced to one side.

Forgetting that T.A is a game of probabilities

Technical analysis doesn’t deal with absolutes. It deals with probabilities. This means that whatever technical approach you’re basing your strategies on, there’s never a guarantee that the market will behave as you expect. Maybe your analysis suggests that there’s a very high probability of the market moving up or down, but that’s still not a certainty.

Blindly following other traders

Constantly improving your craft is essential if you want to master any skill. This is especially true when it comes to trading the financial markets. In fact, changing market conditions make it a necessity. One of the best ways to learn is to follow experienced technical analysts and traders.