Technical Analysis Vs. Fundamental Analysis
Technical Analysis Vs. Fundamental Analysis
Technical 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.
Moving Average support and Moving Average Crosses
The MACD (moving average convergence divergence)
The Stochastic RSI (relative strength index)
Candle Stick Patterns
Chart Formations
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
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
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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
Author: @satchmo
I started out as a fundamental analyst, but over time I was attracted to the field technical analysis (TA). I've been practicing TA for the past 7 years or so. However, I'm inclined to more back toward fundamental analysis. Since 2009, a buy and hold strategy would have yielded better results for me.
In the future, I plan on practicing both styles. Check out some of my technical analysts on cryptocurrencies - https://steemit.com/crytocurrency/@pairmike/bitcoin-technical-analysis-for-8-24-2017.
YES very true in Stock buy and sell, you must have understanding of those. i love moving average, then next level or resistance points. Then some direction of chart and rate of buy and sale, to make a decision. Still lot of things missing in my decision.
Patience is a huge hurdle for people. Patience and strategy. A big thing for me was learning how to memorize levels and being patient for them to hit.
Thank you for breaking down the two, I enjoyed the read.
Quite Welcome! I feel its important for people to decide what method is for them or if they want to learn both just being clear on some of the key distinctions! Glad you enjoyed it!
I often fail at daily trading, just gained all my daily trading loses back and some extra just because of some patience for holding coins with good fundamentals long term
The fact that you recognize that is hugely important, mad props! If it aint working, stop, re-evaluate! Kudos! ... unfortunately a lot of people end up as gamblers
True, if I really wanna play short I'm rather into ICO's
Great read, I loved how you also mentioned to change your TA data from a 9 hour trading day into a 24 hour trading day as well as sharing your rules in your conclusion. Upvoted and thank you for your post.
Thanks very much! I kind of decided to try it out when the stochastic RSI kept giving me false signals or contradicted the moving averages consistently.
useful post a lot of informations
thanks for sharing
Thanks!
gteat point to remember : charting is not black and white and yeah thanks for the rules btw u said dont fall in love hahahaha really ????? :p
Really! No falling in love! I mean with a asset - crypto, stock, commod - no falling in love with your position ever. Have to be able to dump it hahahaha! Thanks, glad you enjoyed the piece!
what about gf's love hahahaha
Thats okay! Just dont show her your portfolio, for better or worse XD
Great post and lots of wonderful research.
To me, the fundamentals can be out of confluence for a long time...the technicals rarely are. Sure you can have negative divergence yet that isnt a foolproof indicator anyway.
How often does someone go on tv and say the price doesnt match the fundamentals? Of course, people who say this tend to keep saying it for a while. Sure, eventually the fundamentals might catch up....but then again, they might not.
Picking good assets to buy with strong underlying qualities is important. That said, the market price can languish for a long time even if the fundamentals are terrific.
You hit the nail! None of it is fool proof!. Not just picking good assets but having a strategy whether trading or investing is essential, part of that strategy is an exit plan, can be as simple as a sell stop or a patience play to cost down and out.
Glad you enjoyed it! ... i do very much agree on quality assets!
Excellent post! An expert's point of view. My focus was solely on Forex for a long, long time, having considered cryptocurrencies high-risk and untested. Will definitely be reading your posts, as I'm beginning to pay more attention to the investment side of cryptos.
Thanks! They are still high-risk and relatively untested ;-) - but its very interesting space especially if you have experience in the more conventional vehicles for generating wealth. Thanks for commenting!
Best charting tool is buy when the noobs panic and exit.
Ya I think that's called buffet analysis LOL -- still in crypto we do have to be careful as though you may score a low entry, D E D money is not fun money ;-)
Thanks for reading!