Fundamental and technical analysis are useful tools for cryptocurrency investors looking to build and manage a portfolio.

As a volatile and rapidly evolving asset class, cryptocurrency investing requires a thorough understanding of the fundamental factors that drive price movements. Two common methods used by investors to help them make investment decisions are fundamental analysis and technical analysis. While these two methods are different, they can both be valuable tools for cryptocurrency investors looking to build and manage their portfolios.

How does fundamental analysis work?

Fundamental analysis involves a detailed assessment of a cryptocurrency’s intrinsic value, based on its underlying economic and financial factors. Fundamental analysis involves a thorough examination of the team behind the project, the technology the project uses as outlined in its white paper, its market share, its competitors, and its adoption rate. By analyzing these factors, investors can determine whether a cryptocurrency is overvalued or undervalued and whether it has the potential to grow in the future.

One of the main benefits of fundamental analysis is that it can help investors identify strong long-term investment opportunities. By evaluating the underlying fundamentals of a cryptocurrency, investors can make informed decisions about which projects to hold for the long term, reducing the risk of short-term price fluctuations and providing steady returns over time.

How does technical analysis work?

Technical analysis is a method of assessing the price trends of a cryptocurrency by analyzing its historical price and volume data. This approach involves examining support and resistance levels, trend lines, moving averages, and other technical indicators to identify patterns and trends in the price movements of a cryptocurrency. This can help investors make informed decisions about when to buy or sell.

One of the main benefits of technical analysis is that it can help investors identify short-term trading opportunities. By examining historical price movements and identifying patterns, traders can make decisions about when to enter and exit positions to take advantage of short-term price movements and make quick profits.

Some of the most widely used technical analysis indicators in cryptocurrency investing include moving averages (MA), relative strength index (RSI), and Bollinger Bands (BB)...

MA

Moving Average - The main function of a moving average is to smooth out prices over time, helping to show market trends more clearly on the chart. Using moving averages as a tool to ignore unnecessary daily price fluctuations, assess market trends, determine resistance and support levels, etc. From there, it helps you make predictions and adapt plans when the market fluctuates.

Moving averages are often divided into two types: Simple moving average (SMA) and exponential moving average (EMA).

RSI

Another commonly used indicator is the relative strength index (RSI), which is a type of oscillator. Unlike simple moving averages that only track price changes over time, oscillators apply mathematical formulas to pricing data to calculate and give results within a predetermined range of values.

The RSI indicator helps traders easily detect overbought or oversold conditions in the market. RSI evaluates asset prices on a scale of 0 to 100, dividing time into 14 intervals. When the RSI is below 30, it indicates that the asset price may be near its bottom (oversold); if the RSI is above 70, it indicates that the asset price is near its peak (overbought) for that period and is likely to decline.

Bollinger Bands

Bollinger Bands – abbreviated as BB – is a technical indicator developed by John Bollinger and is used to measure market volatility. Bollinger Bands are considered one of the most useful tools that combine both market trend information and price action. This indicator is often used to detect overbought or oversold market conditions, and to measure market volatility.

Specifically, the BB indicator consists of two bands located on either side of a moving average. The two outer bands are a response to market price fluctuations, expanding when prices are volatile (diverging from the middle band) and narrowing when the market is less volatile (converging to the middle band).

It should be noted that technical analysis is often considered more reliable and effective in markets with high trading volume and high liquidity. Because markets with high trading volume are often less affected by price intervention. On the contrary, unusual external factors can cause inaccurate signals and reduce the effectiveness of technical analysis.

Therefore, in addition to the familiar technical indicators above, with the specific cryptocurrency market, you can also learn more and apply other indicators to analyze.

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