Crypto trading analysis involves identifying opportunities by analyzing trends and patterns found on cryptocurrency charts. While successful trade requires both fundamental and technical knowledge, many traders rely on technical analysis methods.
Technical analysis allows you to focus on price data and trading volume rather than on what the project entails, enabling you to identify market trends and capitalize on them, minimizing cryptocurrency markets’ notorious volatility.
Fundamental Analysis
Fundamental analysis involves exploring non-quantifiable factors that may influence the price of crypto markets, in contrast to technical analysis which uses indicators and trend lines to forecast cryptocurrency’s future path.
Crypto fundamentals differ significantly from traditional markets as they rely on blockchain and project data which may not be readily accessible compared to equity shares, for instance investors cannot easily view reports on earnings and profit margins like they could with equity investments.
Instead, cryptocurrency fundamentals are typically evaluated through analysis of its development history and community. You can do this by reviewing a team’s GitHub repository updates or social media activity for engagement levels in its community. Furthermore, network fees and transaction values provide insights into cryptocurrency health. Taking these metrics as measures of on-chain metrics is another way of gauging whether an investment may be under or overvalued.
Technical Analysis
Technical analysis differs from fundamental analysis in that it does not focus on valuing assets on an intrinsic level; rather, it relies on market factors and statistical trends to predict price movements.
Technical analysis is used by many traders to identify trading opportunities and predict future crypto market trends. It operates under the assumption that past trading activity and price variations serve as valuable indicators in predicting future prices and volumes traded.
Technical analysis for crypto can make use of various mathematical indicators, including moving averages, RSI, MACD and Fibonacci retracements. While some indicators focus specifically on cryptocurrency investment or trading activity, others can be more general in nature.
One of the most commonly used tools to identify trend patterns in crypto is the relative strength indicator (RSI), which measures an asset’s performance relative to its peers and indicates whether overbought conditions exist; higher values indicate this and lower ones suggest oversold conditions. Alongside RSI, traders frequently look at trend lines and trading volume data.
Price Action
Technical analysis can be an invaluable asset to traders in the cryptocurrency market. Based on the idea that market trends repeat themselves, technical analysis allows traders to identify trading opportunities by using indicators like support/resistance levels, trend lines and chart patterns for prediction purposes.
Keep in mind that cryptocurrencies are speculative assets driven by investor sentiment and therefore more vulnerable to price movements than other markets. Cryptocurrencies tend to react sharply when breaking out beyond historical extremes or reversing around beautiful values such as round multiples of 10, even numbers or repeated digits.
Volatility makes stocks particularly vulnerable to irrational investor behavior that may be difficult to anticipate; however, technical analysis provides traders with valuable tools for making sound trading decisions and increasing profits. Of course, no trading strategy is foolproof and success ultimately depends on proper risk management and discipline.
Chart Patterns
Crypto traders rely on chart patterns for insight into future price movements. Patterns like triangles, head and shoulders, double tops/bottoms, flags and cup and handles provide indicators about which direction a coin might take; but bear in mind they should only be used as supplements rather than sole guides.
Traders also look at volume as an indicator of strength when assessing a trend or pattern, such as flag or cup and handle patterns which tend to form with higher volumes than lower ones. Breakout of such patterns would likely occur more successfully with higher-than-low volumes during breakout.
Learning how to recognize and trade various patterns can lead to huge profits for traders. At PrimeXBT, our award-winning trading platform comes equipped with technical analysis tools so you can practice spotting these popular crypto chart patterns. Get started now by checking out our demo account!
