Crypto trading requires an in-depth evaluation of available information, from use cases to transaction volumes; there are various metrics which can aid traders in making informed decisions.
Understanding how to read a crypto chart is also essential, as this can provide valuable insight into the performance of assets in the future.
Fundamental Analysis
Crypto trading is still so new that it can be challenging to know which assets will maintain value and which won’t. But fundamental analysis techniques used with stocks and equities can also be applied to crypto assets.
An important determinant of a cryptocurrency’s price is its growth potential and user support, and to assess this you can use different financial and non-financial metrics to assess it.
Some metrics for measuring cryptocurrency are easy to discern, such as market capitalization (calculated by multiplying price by total supply). Other indicators may be more difficult to assess, like transaction speed on blockchain networks or amount of fees paid per confirmation. Some metrics can even provide insight into security features of coins such as Proof of Work coins where having a higher hash rate makes mounting 51% attacks harder for attackers to mount.
Technical Analysis
cryptocurrency trading analysis involves using technical indicators to track an asset’s price trends and momentum. Such indicators look at past market performance based on specific metrics, such as relative strength index (RSI), moving averages, and on-balance volume (OBV).
Technical analysis provides traders with a useful way to estimate entry and exit prices based on an asset’s past market performance. Unfortunately, though, technical analysis often relies on empirical data which can become unreliable in volatile markets like cryptocurrency. Since many coins don’t yet have extensive price histories to analyze, technical analysis should often be combined with fundamental analysis so as to easily identify directional biases and match them with appropriate crypto-trading indicators.
Price Action
Crypto traders must understand how to evaluate potential for strong momentum in their chosen asset and determine entry and exit points accordingly. They can utilize similar technical indicators as would traditional markets such as On-Balance-Volume (OBV) which helps predict breakout directions in price.
Moving averages have proven their worth in the cryptocurrency landscape, such as the 200 simple moving average which helps identify whether an asset is trending upward in a positive (bullish) direction or downwards (bearish). Also, traders can utilize moving average convergence divergence indicators as useful tools that provide possible buying/selling signals by assessing relationships between two underlying indicators.
Other tools which may prove helpful in the crypto market include a FOMO indicator and Fear and Greed Index for cryptocurrency trading, both of which measure emotions such as fear and greed among traders, which can create runaway trends which lead to dramatic and exhausting reversals. Finally, price channel analysis and anti-climax patterns provide excellent indicators that help detect such powerful trends.
Candlesticks
Candlesticks first made their debut among rice traders in 18th-century Japan, and since then have become an indispensable way of representing price data. Candlesticks are particularly useful in identifying trends which could signal which direction an asset is headed. Candlestick patterns used by cryptocurrency traders to detect price reversals or continuations include the hammer, doji, bullish harami, hanging man, and shooting star patterns.
Candlestick patterns offer an in-depth account of market sentiment and decisions taken, but should never be used alone as indicators for trades; other technical indicators can offer additional data that cannot be seen by looking solely at candlesticks alone, such as how much volatility an asset exhibits over certain points in time.
