Are Fundamental and Technical Analysis Still Relevant To Cryptocurrency Trading?
The Fundamental and Technical.
In going back to the classical stock trading we very well know that there are two main approaches. First is the Fundamental Analysis which uses the "real-world" value of the asset of the company. It assesses the overall economy both in quality and quantity. The Fundamental analysis determines if the asset is undervalued or overvalued and from there decides where the directions should go.
Now when it comes to Technical analysis it relies only on the price movements and uses statistics to determine the most probable direction of the asset. It focuses mainly on the process and charts and not on the underlying reasons that drive them.
Fundamental Analysis of Crypto?
Fundamental analysis is a long time established method for stocks and equities. But for crypto which is a relatively new industry how do you establish the parameters to decide the criteria for Fundamental analysis? The closest thing that you can compare it with are for a start-up. Much like the start-ups, most cryptos have little information about earnings, revenues, profit margins. or other relevant data.
So how do you decide the value of cryptocurrency based on Fundamental analysis? You may want to research the proposed technology's potential. Is it innovative? Who is the community behind it? Is there a specific target of people or companies that can benefit from it? And if there are users what is the projected market share of the project? What they’ve already achieved? Now I know that these are a lot of questions, but these questions will somehow help us answer if the asset is worth considering and how risky would be investing in it.
Technical Analysis is Relevant.
With technical analysis, is much the same as we'll only be dealing with numbers mainly of reading charts on certain timeframes and looking into different indicators, trend lines and indices. The system is basically the same just to be able to determine which way the trend is going. The figures that will somehow give us hint whether will the asset’s price fall. Is it overbought or oversold? The only slight difference is that mainly crypto markets are considerably more volatile when compared with traditional assets.
Both Are Relevant.
We now see that both Fundamental and Technical Analysis is relevant to cryptocurrency trading. All you need to do is deal with its peculiarities and you're good to go. Why don't you test your skills? Get on with your favorite exchanges and use both methods to elevate your chances of winning.