The cryptocurrency market is full of revenue opportunities. But making money from this volatile market is not possible without analytical skills and only puts your capital at high risk. Also, if you are a beginner trader, you may not be able to make the right decision in the face of all kinds of analysis. Therefore, we interviewed Mr. Alireza Mehrabi to explain the types of analysis and usages of each in the cryptocurrency market.
Types of cryptocurrency analysis
In general, any cryptocurrency can be examined in three ways. After learning the skills of these three methods of analysis, traders will make more accurate decisions by combining them correctly. These analyzes include fundamental, technical and on-chain analysis. You are probably familiar with the name technical analysis. In the following, we will explain each of them.
Fundamental analysis of cryptocurrencies
One of the most important analytical methods is fundamental in any financial market, whether it is the stock market or the cryptocurrency market. In fundamental analysis, we examine the quantitative and qualitative aspects of cryptocurrency projects to ultimately assess their value. Fundamental analysis helps traders and investors understand three things; Scam projects, future projects and the best project among competitors.
Some traders ignore the importance of fundamental analysis. But it is to their detriment. This is because fundamental analysis can greatly increase your efficiency on investment in the long term.
But in fundamental analysis, data is not important for the short term, because it is very qualitative and has little effect on the daily fluctuations of an cryptocurrency. One of the most important uses of this analytical method for short-term traders is to create a daily watchlist.
There are many things to look for in a fundamental analysis. But some of these statistics are much more important. For example, developers, the roadmap, the blockchain structure, and its token applications are among the items that should be analyzed in this analytical method.
Technical analysis of cryptocurrencies
As mentioned, technical analysis is very popular among traders in all financial markets. Suppose that all you need to profit from price fluctuations is an cryptocurrencies price chart. This analytical method is more popular with traders because it is very simple and does not have the complexities of fundamental analysis.
In technical analysis, it is believed that the price history of cryptocurrency can predict its future price. For this reason, with the help of very simple tools, their price targets can be determined. But Mr. Mehrabi has another suggestion. With fundamental analysis, he says, find valuable projects and then, with the help of technical analysis, find the best price to buy. This is directly related to increasing efficiency.
There are many types of technical analysis in the cryptocurrency market. Classic, Price Action and Elliott are the best known methods. If you are going to trade in cryptocurrency, any of these can be your choices, but Mr. Mehrabi’s suggested method is Price Action. Price Action requires the least tools and enables the trader to find out the future price targets just by looking at the price chart of the cryptocurrency.
Learning price action is very simple, because the only logic in this method is price Swings. This method is very accurate, because it fully considers the behaviors and emotions of traders and can identify important points of fear and greed.
On chain analysis of cryptocurrencies
On chain analysis is a completely proprietary method for cryptocurrencies. As you know, cryptocurrencies are powered by blockchain technology. Blockchains become databases that can be important to traders. Therefore, some websites provide chain analysis by analyzing this information and presenting it to traders. It may seem a little confusing. So look at an example:
It has always been said that the behavior of whales in the cryptocurrency market is influential. So how do you analyze their behavior and their transactions?
This is possible with the help of on chain analysis. In this analytical method, it is possible to find out exactly how much the whales bought or sold, how much of their assets were transferred to wallets, or even how much of their assets were sent from wallets to exchanges. Therefore, this method can help cryptocurrency traders to predict the overall market situation in the coming days.
So there are three general methods for analyzing cryptocurrencies. The importance of any of them can not be ignored. But how much we value each of them depends on the trader. The trader may use only technical analysis, and another trader may use all methods to better understand the position of each cryptocurrency. So it is you who, depending on your time and circumstances and characteristics, decide how to analyze cryptocurrencies.