Analyzing the market is so confusing! How do traders know what to do?
It’s all about knowing the right type of analysis to use — and when.
If you’ve ever read our price analysis articles, you would have noticed that they feature graphs that show how major cryptocurrencies have performed against fiat currencies, such as the United States dollar, over time. At first glance, they look like meaningless lines going up and down, but the data tells a story about how recent events in the crypto market have affected prices — and what might happen next.
Analysis is crucial for traders. It helps them make informed decisions on when is best to buy, sell or hold crypto. There are three main types of analysis in the industry — and although technology has made them more accessible and easier to conduct, they have been staples of the financial world for decades. Indeed, the earliest forms of analysis emerged way back in 18th century Asia, when it was used to plot changes in the price of rice.
Technical analysis involves detecting statistical trends based on historical activity — examining price movements and other vital indicators, such as trading volume. These analysts generally have the philosophy that prices follow trends and history repeats itself, and they use their data to predict whether the price will go up or down in the immediate future. That said, it’s like forecasting the weather, you may not be absolutely right.
Fundamental analysis takes a different approach. Instead of looking where prices are going, they look at the factors that drive the numbers — such as the economy or how a company is being managed — to determine an asset’s value.