As a cryptocurrency trader, there are two types of market analysis one must have a good command of. These analyses help in having a profitable trade, they set a trader on the right path of becoming a seasoned trader.
They are Fundamental Analysis (FA) and Technical Analysis (TA). These two are very important and useful in every trade as they help point the direction of the market, if used the right way.
Fundamental Analysis (FA)
This is a method used by traders and investors alike to evaluate the intrinsic value of an asset and analyse the factors that could influence its price in the future. These factors in terms of market capitalization, industry health, economic factors and most importantly the company's reputation and the way it is managed.
This method of analysis is based on external events and influences, as well as financial statements and industry trends. It is used mainly to determine if the price of an asset is overvalued or undervalued.
Technical Analysis (TA)
This is a market analysis method used to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
It primarily involves the study of real world data and predicting the market’s behaviour.
Technical analysis is often referred to as charting, and it aims to predict future market behaviour based on previous price action and volume data.
There are some important indicators used in TA; Simple Moving Averages, Relative Strength index, Bollinger Bands amongst others.
FA & TA
Traders making use of FA look at factors outside of the price movements of the asset itself, while those using TA will derive all the information they need to trade from charts. Traders are usually better at using one analysis as compared to the other, but knowledge of both TA and FA is required to be a profitable trader.
FA is a method used to determine if an asset is overvalued or not, according to its context and potential. And TA that is mainly used as a prediction tool for price action and market behaviour, which shows both should be used hand-in-hand.
It is also safe to say long-term investors and fund managers will prefer to use FA while TA will be used more by short-term traders. Using both will be great for an all-round trader as FA is used for long-term investment strategies, while determining favorable entry and exit points using TA.
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