The market of cryptocurrency seems spontaneous and unpredictable only at first sight, nevertheless, any movement on it can be explained by this or that cause-effect relationship. The study of these patterns and the forecasting of trend behavior is carried out by crypto analysts. They have two powerful tools in their arsenal that have proven their effectiveness for decades in the classical stock market—fundamental and technical analysis models.
The basic idea of fundamental analysis is that no matter how the coin behaves at the current moment, eventually the speculative value of the asset will approach its real price. The problem is how correctly to calculate the true value of the cryptocurrency and identify among all market participants future "unicorns" or those whose potential is clearly overvalued. And if the fundamental analysis is based on the financial statements of companies in traditional investments, then the crypto market does not provide such information.
What do the adherents of fundamental analysis rely on when evaluating the potential of a particular coin? First of all, it is the information stated in the white paper. This document gives an idea of the concept and mechanisms of the project and allows one to assess the professionalism of the team behind it. Important indicators are the mining features and the size of issuance. The activity of the team at Github demonstrates what new functions the project is currently implementing, which can also directly affect the value of the asset. In general, the presence and activity of developers on the Internet is quite an important indicator, and if there are problems with information retrieval or feedback, then this is a serious reason to think whether we are dealing with a scam or a mock project.
Any unique characteristics of the cryptocurrency that differentiate it from the others, such as the reliability of technology, the size of capitalization, the availability of seed investors, or the means of distribution, are direct indicators that allow analysts to determine the real value of the cryptocurrency. If this indicator is higher than the current market value, the coin can be purchased.
Fundamental analysis is a good tool for long-term investment, but while answering the question about what exactly one should buy, it does not say when it is most profitable to do so.
The task of determining the best entry point to the market will help in coping with technical analysis, meaning the very tables and charts that every crypto exchange bristles with. Technical analysis focuses on the volume of trades and the price of the asset and also predicts the dynamics of prices based on historical data.
The basis of the technical analysis is the theory of Charles Dow, one of the founders of Dow Jones and Co. In brief, it can be stated as follows:
History has the property of repeating itself, and by analyzing the reaction of traders to an event, one can predict their behavior in the future with sufficient confidence;
The current price of an asset is equally affected by both past and present events and forecasts for the future;
The dynamics of price has its explanation, and it clearly follows trends;
It does not matter what factors influence the formation of prices, where the demand and supply indicators are more important.
The technical analysis really allows one to make relatively accurate forecasts in terms of coins with a long history of transactions, but its potential is significantly lower if it is a question of scrutinizing new cryptocurrencies. With current volatility, technical analysis indicators do not always have time to react to factors such as changing news agendas or unexpected decisions of regulators, and for a reasonable investment, it is advisable to use technical analysis, drawing also on fundamental data.
Fractals, moving averages, trend lines, and other methods of measuring technical analysis only at first glance seem to be something that cannot be understood. We have launched the "Analyze This" series to discuss most of them in detail and learn how to apply technical analysis coupled with the fundamentals, thus achieving maximum accuracy predictions of the behavior of crypto assets.