As soon as you’ve decided to learn about trading, it is vital that you have these 2 clear concepts because they will accompany you along the way. First, Technical analysis, is based on strategies and techniques that you can use to interpret a graph. Second, Fundamental analysis, is based on news and events that can alter the economy or a specific activity.
These types of analyses are important in that will guide you if it’s time to buy or sell, although below we will describe which of the 2 is the most used or can be more reliable when making a decision.
Technical analysis
As the name suggests, it refers to a more technical analysis and covers the different methods used by the trader when tracing lines, indicators or strategies to increase the probability of success in the next move in an asset or active crypto. If it is true that there is no universal method that indicates precise moments of purchase or sale, over the years some strategies have become important. Among those I consider most profitable and used by traders are:
- Action and language of the price
- Waves of Eliot
- Fibonacci
- harmonic motions
- Institutional movements.
From their theories and interpretations indicate with high reliability the possible moves that the price will carry out according to the trend, the structure or the cycle of the market. In turn, there are complements that have been incorporated into the technical analysis, such asi indicators. Among the most recognized we find: moving averages, relative strength index, bollinger bands, MACD among others.
Depending on the strategy you use, accompanied by the experience and consistency you are marketing, you will surely increase your chances of success. All without putting aside how relevant the trading psychology, a concept outside the analysis and that is more related to the control of emotions when you suffer losses or take profits.
Graph that illustrates the differences between technical analysis and fundamental analysis.
Fundamental analysis
This type of analysis, rather than looking at the charts, takes into account external factors. It is used by many traders, since its essence is information on macroeconomic events that the world in general or a particular asset currently presents. That is to say those events and decisions that a country or an institution makes based on a particular context. For example, if the US government decides to print a lot of dollars, it will devalue and many people will try to sell their dollars to keep their value in other assets such as Bitcoin or gold..
Luckily, there are more and more digital platforms that keep real-time information about these key news for the trader and help him to decide properly.
The fundamental analysis from the point of view of cryptocurrencies, implies, among other things, the knowledge and updating of all new projects of the crypto ecosystem.
It is imperative to know who are the ones who can generate great impact and acceptance in the community. Or what upgrades can lead to certain cryptocurrencies reaching better quotes. Events that are held to incentivize the purchase of ICOs or Tokens (Airdrops, Staking or Rewards) should also be considered.
Within the most important events you can expect a trader, you will also find the famous Halving, that happens in some cryptocurrencies.
Some traders choose to use only Technical Analysis, others only Fundamental Analysis and few are the ones that combine them. However, on the financial markets nothing is written and no one has an absolute truth, so it is important to be informed and, above all, to have a defined strategy. As we usually say, the more repetitive you perform, the more chances you have to do backtesting and analyze your hit number vs. failures.
