It is still widely considered to be highly risky and speculative to invest in cryptocurrencies. Even though any single cryptocurrency is subject to the risk of collapsing, almost all financial experts agree that cryptocurrency is the way forward. It is not a question of whether or not cryptocurrencies will be a quintessential asset in five, ten, or fifteen years; instead, it is a question of which coins will be at the forefront of this transition.
While studying cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, or any other altcoins, consider the crypto markets as stock exchanges, and consider applying specific analysis methods.
Technical Analysis
When it comes to trading, technical analysis is the art of analyzing market movements to predict future price direction and trading opportunities by examining historical statistical data of the tradable instrument.
The basis of technical analysis is examining price action patterns to determine the strength or weakness of security.
Modern-day trading and investing are increasingly based on technical analysis, which has become one of the most widely used approaches in the world. As a result, numerous institutions and individuals have invested a significant amount of time developing some of the most sophisticated technical analysis tools currently available.
Technical analysis and charting are excellent tools for short-term trading, such as intraday trading or scalping, because they allow for the entry of significant signals into the market. This method can be effective for cryptocurrencies, but you must act quickly to take advantage of it. Because of the high level of volatility, support and resistance levels can experience significant setbacks.
Fundamental Analysis
While fundamental analysis is concerned with the study of factors that influence the value of a security, macroeconomic factors such as the economy and the industrial sector to financial conditions derived directly from the underlying asset are covered in this section.
A fundamental analysis's ultimate goal is to provide a theoretical framework that a trader or an investor can use to compare the current price of a tradable instrument with its intrinsic value. This type of analysis will typically result in an asset being considered undervalued or overvalued, depending on the circumstances.
Fundamental analysis is particularly useful for position and long-term investors who intend to buy and hold an asset for an extended period.
Hybrid Analysis
A significant portion of the financial markets is being controlled by Quantitative Economists (Quants). The majority of traders now use a hybrid or dynamic approach to conduct their research. This method is also employed by trading applications such as BitIQ (link here), and many others.
It is possible to use a hybrid strategy by combining both fundamental and technical analysis techniques while also developing a mathematical approach that you can use to predict the price action more accurately.
While the model is still in its early stages, it has already proven to be more effective than most technical and fundamental analysis methods.
One of the most significant advantages of using a hybrid model is that it is more accurate than most other analysis techniques currently available. The disadvantage of its application, on the other hand, is that it requires more technical knowledge to configure and operate.
Conclusion
When it comes to cryptocurrency exchanges, you can't expect them to operate in the same way that a stock market exchange does. Volatility is significantly higher, and while the upside potential is arguably more significant, the downside potential is exceptionally steep. As previously stated, you can increase your chances of success by employing techniques such as technical analysis, fundamental analysis, and sentimental analysis in your activity.
