TA users believe they can predict future price movements based on the past performance of assets. Technical analysis also yields valuable trading data, but it results in different insights. They can then leverage that information to strategically enter or exit positions.
By looking at a number of internal and external factors, their main goal is to determine whether said asset or business is overvalued or undervalued. In this article, we will attempt to identify metrics that can be used to craft your own indicators.įundamental analysis (FA) is an approach used by investors to establish the "intrinsic value" of an asset or business. To conduct proper FA in cryptocurrencies, we need to understand where they derive value from. In cryptocurrency fundamental analysis, though the approach is similar to that used in legacy markets, you can’t really use tried-and-tested tools to assess crypto assets. As such, these technical analysis tools are also extremely popular in the cryptocurrency space. Tools like RSI, MACD, and Bollinger Bands seek to predict market behavior irrespective of the asset being traded. Many crypto traders use the same technical indicators seen in Forex, stock, and commodities trading.
When it comes to technical analysis, some expertise can be inherited from the legacy financial markets. Selecting a strategy, understanding the vast world of trading, and mastering technical and fundamental analysis are practices that come with a learning curve. Trading assets as volatile as cryptocurrencies requires some skill. At that stage, you can use your insights to inform your trading positions. Your goal is to reach a conclusion on whether the asset is overvalued or undervalued. For instance, you might look at its use cases, the number of people using it, or the team behind the project. Crypto fundamental analysis involves taking a deep dive into the available information about a financial asset.
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