So now you somewhat have your head around what cryptocurrency is and how an exchange works, let’s get into the technical aspects of trading. To begin, there are three types of ways in which you can analyse the market.
- Technical Analysis
- Fundamental Analysis
- Sentiment Analysis
You will always hear of TA in forums, but just knowing one type of analysis is not enough. To better yourself in the market, you should be experienced in all fields. Just like a sport, if you have a great offensive, but shit defensive, you may win some of the time, but your defence is going to let you down at one stage. So let’s jump into understanding the three types of analysis, and as we go through the course, we will go more in depth with each type.
This is the one that you will always here – hur dur TA, chart reading, wedges, triangle memes, dips etc. Technical analysis, commonly known as TA, pretty much summed up is forecasting what the market will do based on past market data in terms of price and volume on charts. By using this data and performing a technical analysis, you can draw theories from the past performance of a coin and see price patterns and market trends and look to exploit these for profit.
You may have heard of Fibonacci, Pivot Points, Japanese Candlesticks, and Bollinger Bands in determining how to read the trend of a coin. These are all types of Technical Analysis and we will go through them further throughout this course.
An example of Technical Analysis
But at the same time, technical analysis is used by all traders at some point. So two traders looking at the same chart may come up with completely different ideas of where a coin will go in terms of reading the charts. So Technical analysis is not, the be all end all, as a tool used to trade. Other factors come in to move a coin up, down or sideways.
Fundamental Analysis or better known as FUD in the crypto world. In the real world FA is a way of looking at the crypto market by analysing economic, social and political views that may affect the supply and demand of a coin. In the crypto world, to put yourself in a better position, you should be following well known Twitter users, researching coins on Bitcointalk, and following news events such as Coindesk. All these factors, affect a way in which a coin moves. Not to mention the amount of FUD that is projected onto a coin, in order to manipulate a coins price lower or higher for profit to be made. You must be very careful in being able to decipher the shit from the real. In saying that, some coins have the biggest news and announcements from conferences etc. and the price will still fall – most of this is attributed to buy the rumour, sell the news. Keep this in mind, as 9 out of 10 times, this follows suit, as weeks leading up to an announcement, this news gets priced in.
So unless you have been living under a rock, you would have heard of the biggest killer of Bitcoin in 2014 which saw a major crash in price. This was the so-called hacking scandal of Mt. Gox where almost 850k Bitcoin valued at more than $450 million had gone missing. This sent the world of crypto into chaos and the Bitcoin price that peaked at around $1200 USD was sent into a spiral downwards, and by the time all the dust settled, it was trading at a low of $180. This is just one example of Fundamental Analysis and how it can affect the market.
Emotion and opinions of traders are very different; therefore you need to get a feeling for the market in deciding which way a coin will go. Sentiment Analysis is all about feelings – yes we all have feelings and these feelings turn into emotions in which we are driven by. No matter what information is handed to you, at the end of the day, it’s your gut feeling whether you will be selling/buying or holding. Everyone takes on information differently and output it differently; therefore the general market can be very scary at times.
You need to be able to gauge how the market is feeling, and through that decide whether it is bullish or bearish. You will get your fudders, your shillers, your pajeets, all trying to spruik their ideas of how a coin will go, and this in effect, affects how the market will trade. FOMO aka Fear of Missing out, is also a feeling, where traders get caught in a trap of Pump and Dumps, and buy into the peak of a pump and are left bagholding a coin, whilst it plummets back down to earth. Don’t be one of these traders. Don’t get emotionally caught up in buying a coin. That being said, you do need to know how the market is feeling, and whether or not it is a good time to buy or sell in the market.
Ready to check out some charts? Let’s move onto Types of Charts.