Cryptocurrency Analysis: Basics of Market Movements Forecasting
Contradicting many false beliefs, crypto trading is far from being solely based on luck. In reality, it is a combination of experience and knowledge, the ability to do an in-depth cryptocurrency analysis, evaluate the current state of the market, and predict its movement. Although one can possess all the needed skills to be successful in this area, with the backdrop of the emergence of huge number of cryptocurrency exchanges offering users various crypto tools, it becomes more and more difficult for newcomers to enter the market. In order to deal with at least one cryptocurrency analysis tool, a novice trader needs to navigate through basic terms and concepts, immerse himself in the work of all mechanisms, and also constantly have finger on the pulse of the cryptocurrency industry. There is absolutely no need to be terrified when using a cryptocurrency analysis software, the main thing here is to understand that the digital asset market is a volatile environment and only a competent forecast and analytics will be your main partners in achieving your goals.
The progressive crypto market already provides a lot of opportunities for traders, one of which is not to be limited to functionality and analytics of any particular exchange. For example, an all-in-one GoodCrypto app extends the crypto traders` capabilities with the help of advance trading tools. With a simple, intuitive and sleek interface, it allows you to effectively apply your knowledge and forecasting skills for achieving the best results on the crypto market. In other words, the app does all the hard lifting for you, allowing to focus your mind on your strategy which you will apply on the market. And in this article, we will consider and get deeper into the main approaches and indicators that are used by professional traders to predict cryptocurrency prices.
The essence of technical analysis is finding and tracking patterns and trends in the asset`s movement history, which will presumably be repeated under similar circumstances. This approach helps traders to predict in which direction and at what pace the asset`s price will move in a certain period of time. The charts that are formed online are already reflecting the reasons that influenced the price of the cryptocurrency. All you are left to do is to find similar trends in the asset history. For this purpose, various techniques are used.
More and more traders use technical analysis in their activities, as it is quite simple and clear due to the fact that forecasting is based on graphs. It is not that difficult even for a novice to trace price changes and find a trend in an asset’s movement.
Moreover, professionally compiled technical analysis implies an accurate forecast of where and with what probability the price will be in a certain period of time since any trend is most likely to repeat itself. In order to detect the emergence of a new trend in which the cryptocurrency rate will behave in a specific way, the trader can either choose one of the tools amongst the ones that we will consider below, or develop his own method of analysis.
Technical Analysis Indicators
The cryptocurrency market, which has long been a part of the global financial industry, provides traders with an opportunity to invest in advanced digital assets. And in order to have a noticeable profit from these investments, market players strive to achieve the highest accuracy of their forecasts using various indicators of technical analysis. There are quite a lot of them to choose from, in this article we will consider the most popular and used amongst marketers.
The volume indicator differs from other technical analysis tools, however, traders prefer to use it due to its simplicity and effectiveness. In general, the volume indicator does not perform any calculations and doesn`t provide buy/sell signals. The indicator`s purpose is to demonstrate the trading volume of a certain asset for a specific period of time.
Thus, the trader will be able to analyze the behavior of the price, facilitating the preparation of an accurate forecast.
This approach is useful in trading activities, as the volume shows how strong the current trend is. For example, if the cryptocurrency rate rises and the volume also demonstrates high indicators, the trend is undeniably considered strong and most likely will remain such for a long time.
However, a sudden increase in volume indicates the possibility of the price change. You’ve probably noticed such scenario when the cryptocurrency information environment is activated. The increase in trading volumes is a direct result of powerful market trends.
At the same time, it is worth saying that using only one volume indicator is not sufficient to create a high-quality trading strategy, so you should pay attention to other technical analysis tools, learning how to use them together in an effective combination.
Wishing to learn about recent changes in the global market, traders use the ZigZag indicator. Although it should not be attributed to the main tools of technical analysis, the use of ZigZag in combination with other indicators allows the traders to widen their capabilities.
ZigZag gives traders an ability to analyze the highest and the lowest points of the asset price and identify the best entry moment into the market. The advantage of this tool is the suppression of noise that interferes with the forecasting of the trend. Insignificant volatility is ignored, thus the higher and lower points are connected directly.
However, it is worth considering for novice traders that the signals of this indicator may be late, and if this issue is not taken into account, the forecast may turn out to be incorrect.
The Moving average indicator also takes its rightful place in the category of the most popular technical analysis tools. It is based on the analysis of the average price of a certain period of time. The graph of moving averages is correlated with the graph of the current behavior of the rate, thus providing a picture of the general price trends. In general, you can predict the growth of cryptocurrency using this indicator if the asset price is above the moving average for a long time. A tendency says that if there is a decrease in the rate in respect to the moving one, the forecast will predict a further decrease in the rate.
It is worth noting that the simultaneous use of several moving averages increases the trader’s chances to make the most accurate forecast. In this case, the selected moving averages should be determined for different time intervals.
In the framework of technical analysis through moving averages, the following types of this indicator are presented: simple, weighted, and exponential.
The most accurate forecast will be achieved in case of coincidence of the signals of several moving averages. However, if the moving averages don`t match, then it is customary to take the value of that averaged into account, which is based on a longer time period.
Price dynamics can also be predicted by Fibonacci levels. Interestingly enough, this indicator is especially popular among traders of the global financial market. In the case of the cryptocurrency industry, many crypto investors noted their positive experience from using this tool.
Using Fibonacci levels, the trader will be able to track price movements, since the indicator itself operates with standard levels of 0; 23.6; 38.1; 50.0; 61.8; 76.4; 100. Using these levels, the trader will be able to estimate how much the price will change during periods of a bull or bear trends, as well as determine the levels of support and resistance.
At the same time, this indicator isn’t the main tool of technical analysis, as it helps to determine possible levels of support and resistance, as well as price reversal points in the future.
Quite an interesting and useful indicator with an eastern name. The Ichimoku indicator is known for its ability to qualitatively determine support and resistance levels, and ability to predict the direction of the trend. This indicator consists of five lines, which are a display of average values over time intervals determined by the trader. In the case of the intersection of two lines, the space between them becomes a “cloud”.
A trend can be considered rising if the asset price is above the cloud, and if the situation is the opposite, the trend is on decline. It is generally accepted that in case the cloud tends towards the price, the trend is strong.
Relative Strength Index (RSI)
The RSI indicator is considered to be one of the basic tools of a crypto trader. It demonstrates cryptocurrencies` overbought or oversold stance. In fact, the relative strength index analyzes the market demand for the asset and shows the ability of traders to buy back such an amount of an asset that will lead to its fall or growth.
Relative Strength Index is formed by two lines at the level of 30% and 70%. As a general rule, if the indicator value is below 30%, you can make a forecast for the growth rate, and if the indicator value exceeds the line of 70%, the price is likely to go down.
Speaking about the analysis of the cryptocurrency market, we should also pay attention to another approach – the fundamental one. What’s interesting, initially crypto-investors rarely turned to classical fundamental analysis, but the formation of a large market led to the adaptation of this approach to digital assets, and now traders are actively using it in their strategies.
If we take a step back to terminology, the fundamental analysis can be called long-term forecasting of the cryptocurrency asset prices, which is the result of the combination of economic and technical factors.
If technical analysis can be used by traders both in the long and short term, then in the case of fundamental it will be necessary to dive deep into the information space of the asset in order to obtain its real value over a long period of time. Most often, this approach is used for forecasting for a period of a week to a year, since a longer time period can distort the initial vector of cryptocurrency development.
Below we will consider several methods of fundamental analysis on the cryptocurrency market.
Making cryptocurrency price forecasts that is primarily based on fundamental analysis depends on the demand for the asset. This factor directly demonstrates the further growth or fall of the cryptocurrency. For example, the reason for investing in a specific asset may be its relevance, or, in other words, its ability to integrate into a business or economy.
Obviously enough, in the process of fundamental analysis, it is worth paying attention to the algorithm of obtaining cryptocurrency and its total volume in the market, which will give an understanding of how many users will own it in the future and what is the indicator of its demand. It is a widely known fact among the traders that a limited number of coins will increase their value in the future.
The economic situation in the market
After analyzing the trading volume of the asset, you can get information about the number of interested users. At the same time, the fundamental analysis should include both the number of traders and long-term investors. If the number of traders is greater than investors, then we can conclude that rapid decline in value is probable. But if the number of long-term investors prevails, then the asset can be considered promising.
Fundamental analysis also includes studying the cryptocurrency development team. Using this approach, you can not only verify the professionalism of the team members, but also evaluate their technical background, which directly affects the compliance with current technological trends and, accordingly, the prospects of the asset.
As part of this method, the activity of the community itself, which has formed around the asset, should be tracked. Typically, these communities consist of users, developers, and holders. Of course, if the cryptocurrency has a negative trend within the media space, and the community doesn’t interact with the developers in any way, potential users will not pay attention to it, which will lead to lower prices.
Of course, the fundamental analysis is quite complicated, especially for novice traders, since it takes a lot of time to gather and consider all the indicators.
However, despite of this, the fundamental analysis still remains relatively popular among traders who are both deeply immersed in the search for details of the cryptocurrency industry and are not afraid to put their knowledge into practice.
Fundamental analysis is a good option for long-term investments and a great chance to explore the cryptocurrency market as a whole.
The use of both technical and fundamental analysis has long been a prerequisite for trading. At the same time, it is worthwhile to understand that the more tools you have, the more accurate your forecasts will be.
For example, using only fundamental analysis cannot guarantee you a good result, but in conjunction with technical analysis tools, you are able to conquer the cryptocurrency volatile environment and predict its moods.