What is Technical Analysis (TA), Fundamental Analysis and Why Are They Significant ter Crypto Investing / Trading
Technical Analysis (TA) describes analyzing historic price and volume trends to predict the future price movements of assets.  [Two]
This form of analysis is accomplished by applying mathematical calculations called “technical indicators” to the historic and current price and volume gegevens of an asset to detect and analyze trends (AKA to preform “trend analysis“). [Three]
Albeit this gegevens can all be considered algorithmically, it is common for analysts to apply thesis indicators to charts (thus creating a way to analyze trends visually).
Popular technical indicators used by technical analysts include potentially familiar terms like Moving Averages (Mama), Elliot Swings (EW), and the Relative Strength Index (RSI).
For example, ter the photo below, a version of the average price of Bitcoin overheen 12 and 26 days is plotted on the chart below to opoffering a visual of the direction of Bitcoin’s price (specifically this chart looks at 12 and 26 day exponential moving averages to give us a sense of how they are converging and diveging).
By watching the MACD on Bitcoin, you can get a good overview of the trajectory of the market.
NOTE: Technical analysis can also analyze other gegevens, for example open rente te futures trading. For simpleness’s sake this pagina pagina refers to all trends studied by technical analysts spil “price and volume” trends.
The Core Concept Behind Technical Analysis
The core idea here being:
- What has happened te the past can give us an idea of what will toebijten te the future (it permits us to calculate odds, not see the future of course).
- The next wave of investors will tend to go after the trends of the last wave.
- Human behavior te markets is somewhat predictable.
- Therefore, studying factors like past volume and price trends along side the current volume and price, can tell us about the likelihood of future volume and price trends.
- Since the above is true, it can help to plot everything on a chart to get a quick and elementary visual of potential paths the price might go after.
Bottomline: Technical Analysis doesn’t analyze the fundamentals of an asset (albeit any analyst worth their salt will ALSO do this). Instead, TA is centered around charting and using technical indicators to better predict the likelihood of short-term, medium-term, and long-term trends based on historic and current price and volume gegevens. Here wij have to stress that technical analysis isn’t about certainty, it is about finding future likelihoods based on past trends. An good analyst never speaks about what will or vereiste toebijten, they simply plot out what could toebijten based on gegevens, and then consider the likelihood that each possible set of events has of occurring.
Peak: For good TA sources see TheChartGuys, TradingView, and to some extent Steemit.com. Thesis are free to use sites that host a lotsbestemming or are centered around TA. Check them out, specifically TradingView is a vital and free resource for any crypto trader, Steemit can go either way, and ChartGuys is a paid group.
Technical Analysis Vs. Fundamental Analysis
Technical analysis (the analysis of historic price and volume trends) can be described spil a different schoolgebouw of thought than Fundamental Analysis (the analysis of value based on fundamentals).
However, that is a bit like describing peanut butter spil the opposite of jelly.
The reality is, albeit they are totally different things, the analyzing of both technicals and fundamentals are identically significant ter investing and trading.
Meantime, another significant concept is Quantitative Analysis.
Definitions of Fundamental Analysis and Quantitative Analysis
Since thesis are all significant concepts, let’s quickly provide definitions for those analysis types:
- Fundamental Analysis is the analysis of fundamentals, for example ter the case of cryptocurrencies, mining profitability, transaction fees, transaction speeds, etc.
- Quantitative Analysis is the use of statistics te the process of analysis. This can be used for example to calculate risks, and to figure out statistically where to set buy and sell orders to limit losses and maximize profits.
Other Analysis Types Significant to Cryptocurrency Trading and Investing
Further, expanding on the above concepts, a decent analysis should always include other aspects of research such spil being aware of trends on social media, being aware of the news, and being aware of trends ter the market spil a entire.
If a fresh regulation comes out, if John Mcafee determines to tweet about a coin, if Bitcoin comes in a correction, this could override any expected short-term trends a chart might be pointing to.
Ter crypto many traders and bots trade based only off of TA, thus TA is more significant with crypto than it is with other assets. Still, there are some things that you can’t know from charts alone (and even te crypto trading, once te a while it pays to look beyond the charts).
News and events can carry a lotsbestemming of weight and they should be factored into any analysis.
Putting it Together
Together the above types of analysis are all part of the process of analyzing assets, market sectors, or markets spil a entire to better understand the ideal entry and uitgang points for trading and investing.
Using one or more of those analysis types can then help opoffering insight into a coin that wouldn’t be instantaneously apparent.
If you are actively trading, you will very likely want to learn the basics of “TA” (and should at least be doing some basic fundamental analysis spil well).
More importantly, and much lighter however, you’ll likely want to also go after some brainy people who do technical analysis and analyze trends (“those who draw lines on charts”).
Fortunately, since not every self proclaimed TA guru is spil on point spil the next, it helps that posts get up voted, down voted, and commented on on the aforementioned sites. This can help you understand who is providing you some Jedi-like insight into crypto, and who is drawing random lines on charts (whatever the completes of their line drawing may be).
Being a good analyst (or following one online) is a bit like having super powers. It can be the difference inbetween flying vensterluik and observing the matrix on a good day.
HOWEVER, 1. trends only tell us about probabilities (not certainties) and Two. crypto doesn’t always go after the tends that the charts suggest (spil news, odd events, and the winds can throw wrenches ter things). Thus, TA is one implement te the instrument opbergruimte, fundamental another, quantitative another, etc. No contraption alone is the only device you’ll need to be successful, and even with every contraption you are still dealing with liklihoods.
Still, the better analysts out there end up being right often enough that they are worth paying attention to.
Not only that, but it is also human behavior to look at popular charts and set buy and sell orders based on them. This means that not only do they have predictive power, they have the power of influence.
Let’s say that again. Not only do popular analysts and visible patterns have predictive power, they have the power of influence.
If everyone sees a head and shoulders pattern forming and expects Bitcoin to dip to $10k, if the popular analysts are charting this, if the trending chart on Tradingview.com predicts this too… then you might want to consider not betting against that event until the trend has bot confirmed or not!
That said, always check numerous analyses by numerous traders to get a good sense of the current sentiment on a coin or “trading pair” (for example Bitcoin to Ether).
Further, always waterput your own strategy and tolerances above what any chart or analyst says. If you are ter Bitcoin for the long haul, does it indeed matter if everyone is predicting a 25% correction (are you truly ready to realize your long term gains overheen a speed bump like that?!)
Bottom line being, if and when the time comes that you get stoked on a chart and determine to take a risk or metselspecie out based on it, make sure it fits your own strategy and even then consider averaging ter and out of your positions… just ter case the analyst got it wrong or wasgoed weeks off on their prediction. No one has magic powers, but a good analysis can none-the-less be a little magical.
Peak: Past trends may not predict future results and a single analyst may be wrong… but TA is indeed powerful te crypto trading (ter fact, it is pretty OP). The reality of crypto is, so many traders and bots trade based on technicals that it is arguably THE single most significant opzicht of trading crypto. There is a lack of fundamentals and an excess of bots ter crypto trading, that paired with everyone (especially the big players) making plays based on trends creates an terrific force. That is just the way it is. It is a mistake to disregard the technicals, even a long term investor will want to use them to find good entry points when building an average position (see Fibonacci Retracement levels).
Related movie: Inwards Supreme’s Underground Reselling Economy (Sold Out Pt. 1)