How to Analyze Cryptocurrency
To succeed in crypto-investing, you need basic concepts about the economy and the rules for forming prices in the market. Also, you can not do without various methods of analysis and valuable services that provide information.
Cryptocurrency Market Analysis Methods
Cryptocurrencies are a very young but dynamically developing market. There are some practical methods for analyzing it.
Graphical Analysis Method
Graphical analysis is the cornerstone of a trader’s success. The fact is that the cryptocurrency market is still relatively small. Today the capitalization of cryptocurrencies is just over $ 2 billion. It is the low capitalization that plays into the hands of traders. The smaller the market, the more the so-called crowd psychology can be traced. The market trades technically and is easily predictable from the point of view of classical market analysis techniques.
Graphical analysis is pervasive, but at the same time, not a very difficult technique to master. There are three main ways to represent prices in the form of a chart:
- line graph;
- diagram in the form of Japanese Candles;
- bar diagram;
Line charts are the least informative, showing only one price value per unit of time. In contrast, candlestick and bar charts are very similar. The candlestick chart shows four price values for the selected time interval. The candlestick itself has open, close, minimum, and maximum prices.
Unlike bars, the distance between the open and close is painted over and forms the candle’s body. In the case of bars, the body is not displayed and is just a vertical strip. The advantage of this price display method is that all random fluctuations are averaged and reduced to four fundamental values. This allows you to cut off all fluctuation fluctuations and focus on essential information.
Graphical analysis allows you to find specific patterns and make correct predictions of further price movement with up to 80% probability. These patterns are called chart analysis patterns. The patterns themselves are divided into continuation patterns, after which the price will most likely continue to move in the same direction as before. Reversal patterns, after which the price will most likely change the direction of movement to the opposite and bi-directional patterns, after which the price can equally likely change or maintain the direction of its own movement.
Method of Mathematical Analysis
There are mathematical and fundamental types of market analysis. Mathematical analysis is one of the most popular methods for analyzing stock prices. It is directly carried out using indicators of mathematical analysis. As a rule, it is an integral part of the trading system of any trader. The indicators themselves work based on mathematical formulas.
There are two most important concepts in the market — price and time. Based on cost, time, and mathematical calculations, indicators help a trader determine when to buy, sell, and fix the result. However, mathematical and graphical analysis has another very important advantage — they allow the trader to understand when to enter the market, not to enter the market, since there are simply no trading signals.
The Moving Average indicator is calculated based on the formula for calculating the mathematical average. And the intersection of the price with the moving one allows you to determine the points of buying and selling cryptocurrency. The Relative Strength Index (RSI) indicator analyzes the closing prices of candlesticks. It uses a mathematical formula to determine the strength of an uptrend or downtrend. It allows you to identify overbought and oversold zones of a specific cryptocurrency, the exit from which gives a signal to open a position.
News Trading Method
Fundamental analysis of the cryptocurrency market includes any news that is published and related to cryptocurrencies:
- announcements of significant events;
- government regulation news;
- interviews, statements, and opinions of managers of significant funds;
- data on the listing of a particular cryptocurrency on the exchange;
- insights, stuffing, unverified information, and much more.
Finding helpful information is a challenging task. In most cases, unique calendars and scheduled events do not exist. We cannot be entirely sure about the chaotic news background. It is important to remember that the news itself will never tell how much the price can go. However, any news events significantly impact the market in general and the cryptocurrency market in particular.
Method of Graphic and Mathematical Analysis
A slightly more complex and complex approach is to use a combination of graphical analysis of the Cryptomarket with mathematical analysis. For example, continuation and reversal patterns and bi-directional patterns can be combined with RSI and Stochastic indicators. While multiple tops and bottoms, triangles, heads and shoulders, and price channels will help us find entry and exit points from the market and place Stop, presence, and the exit of the indicators from the overbought and oversold zones will help to clarify these very points and further increase the trading efficiency.
Valuable Services for Analyzing Cryptocurrencies
In addition to the methodology, specific services will help analyze the crypto market. With the help, you can track market changes and implement various methods of analysis.
The service is a valuable tool containing, perhaps not all, but a large share of the necessary information about the world of cryptocurrencies, as well as fundamental and investment analysis. As a bonus, we can note the GitHub Analysis section, which recorded the activity of cryptocurrency rates on a well-known resource over the past year.
Map of Coins
Map of coins talks about cryptocurrencies through interesting infographics. High-quality infographics are always more understandable than dry numbers. Any analytical information is easier to perceive using visuals. This is not to say that the platform provides a specific amount of data for analytics. Still, it clearly shows hard forks and information about each of the technologies.
The service offers visitors detailed information about a huge number of cryptocurrencies and tokens (more than 5000 at the time of this writing), updated online by processing data provided by exchanges. In addition, the service specializes in a variety of rating lists and comparative charts, collection of historical market data, and other useful functions for the crypto community, which favorably stands out against the background of competitors. It is one of the most famous and largest cryptocurrency analytics sites.
Another resource that provides data on the world of cryptocurrencies, however, specializes primarily in bitcoin. On CoinDance, you can find statistics about Bitcoin users, the history of the rise and fall of the coin, comparisons with other well-known cryptocurrencies, information about the legal status of Bitcoin around the world, and much more. A real guide to the world of bitcoin!
The platform is a suitable option for conducting Bitcoin-related trading activities. The site contains a massive variety of infographics related to BTC. The platform’s functionality is not very large, but it offers the following points:
- analytical analysis of the Bitcoin user audience;
- work with statistical data of mining pools;
- work with statistical data on nodes and blocks.
One of the world’s leading digital asset data processing platforms for clients in the corporate, government and retail sectors. CryptoCompare offers comprehensive cryptocurrency trading statistics, depth of stock order books, cryptocurrency blockchain metric information, social data, various reports, and indices. It is one of the most famous cryptocurrency analytical platforms with a lot of helpful information and a forum for exchanging experiences.