Technical Analysis Vs. Fundamental Analysis
Is a method of predicting or forecasting the price movement of an equity or asset through statistical data visually represented in the form of a chart. Price action, supply and demand in a given moment, is the data being analyzed. Volume, direction, progress, regression, it's all about determining trends and points of inflection.
TA (technical analysis) can be used to predict very short term price movement or very long term. The key thing to remember is that charting is not black and white, yes or no. It is a tool and can change on a moments notice. It is up to the trader to recognize the change and adjust their positions or trade accordingly. This is why the stop loss is an invaluable tool.
Some traders make charting supremely complicated, opting to use difficult to understand methodology, which may or may not be more accurate than more conventional methods. I personally prefer a relatively simple method focusing on candlesticks, pattern formations, momentum and volume.
I do use pivotology as well, but the anybody can learn to use and understand the very basic tools.
The links above will take you to the investopedia definition. These tools have been around for years, they are normally applied to a 9 hour trading day. I have multiplied all of my indicators by 3.4 to account for the 24hours of trading in crypto. For example, where I use the 9 day exponential moving average on a conventional equity, I have found the 30 day exponential moving average to be more reliable on crypto currencies. If you want to learn technical analysis you need to study the basics.
Doing more detailed charting on crypto is not very easy through the tools provided on the exchanges. Investing.com is a news outlet with free, real time charting tools that use the TradingView API and therefore list most of the crypto currencies while providing you access to a wider variety of technical indicators, a lot more customization and you can save presets.
Simply create and account or login through google, the alternative would be paying for tradingview which is not necessarily practical for everyone.
The goal here is to point you in the right direction for upping your game in crypto trading and investing by sharing valuable tools and resources with you.
Fundamental analysis is in depth research done on an equity or asset to determine its future expected value, but it is not guess and test. It requires discipline and a thorough understanding of the subject matter, business and economics. With crypto currencies, it is indeed a lot more difficult to understand the subject matter and requires some technical savy and study of blockchain technology.
I have found when researching a particular cryptographic asset, the number 1 re-occuring question I ask is, "what does it do?"
Pretty simple right? Not really, when I ask this question, I want to know what makes a currency stand apart, what is it's value proposition and how will the company or organization achieve it. This is a daunting task right now as there are well into 1000 different coins out there, some of them completely worthless.
Being a currency this is where we can use market cap to narrow down our search. View market capitalization in tiers.
Less than $1 million = Micro Cap stocks/Pink Sheets
Several Million $ = Small Cap/Penny stocks
100's of Million $ = Medium Cap Stocks
Billions of $ = Large Cap Stocks
Fundamental investing doesn't mean we are going to look for cheap coins and hope that they appreciate in value at an exponential rate some time into the future, cheaper is not always better. Market Cap is a tool that fundamental investors would use to narrow down the list of potential crypto assets to invest in based on their total market value. The view to take is a % gain is the same whether the coin is $1, $5 or $4000 so making sure you invest in a coin that isn't going bust is more important than how much you pay.
Aside from understanding the tech and economics of a cryptographic asset, conventional fundamental analysis would be looking at the balance sheet of the organization or company behind it to ensure their health. In crypto we do not have this luxury and to some degree those who practice fundamental analysis are flying blind on the business practices front. This makes it that much more difficult to do FA on crypto and may mean that the investor is purely relying on the adoption of the technology.
Both Work but...
As the industry is very new, as regulations are yet to come in, there is an insane amount of risk participating in crypto. For the less experienced I recommend sticking to the household names. For the more experienced, well you know what's "up" ... or down. Below is a very strict set of rules I follow in equities and now in crypto.
- Never risk more money than you can lose - are literally willing to say goodbye to.
- Capital preservation is the key to risk management and surviving the unexpected - live to play another day.
- Know what you bought. You really need to know what you bought.
- Maintain liquidity by never going all in, have a cash reserve.
- Don't fall in love. Never.
- STUDY - it never stops, learn as much as you can continuously, especially from your mistakes.
- Ignore FUD, ignore Hype (Fear Uncertainty and Doubt).
Dont let your emotions take hold by giving into FUD which will probably see you panic sell or lock your crypto into cold storage. Don't give into hype which will probably see you chasing and buying a top. Stick to your game plans, or move on otherwise you will have a recipe for disaster that see's you breaking every rule while turning you into a gambler or chicken little.
We as pioneers -- or peons I don't know yet, have to remember two things in this brave new world:
Scared Money Don't Make Money
A Fool And His Money Are Quickly Parted