From Indicators to Insights: How to Combine Technical and Fundamental Analysis in Crypto Trading
In crypto trading, data is everything, and investors are always mindful of the latest information about the assets they trade. In this regard, two broad approaches inform how the investors analyze the data at hand.
One focuses on the technical analysis of the crypto market, and the other on what’s called the fundamental analysis. In this article, we’ll explain the differences between the two and why investors don’t need to be made to choose between them.
Understanding the Two Pillars of Crypto Analysis
Technical Analysis (TA)
Technical analysis focuses on price action and requires investors to follow indicators such as moving averages, relative strength index, volume, and on-balance volume. This is done by reading and analyzing publicly available charts and graphs compiled by crypto exchanges.
For example, when a crypto coin trades above a certain level, it may signal it’s overbought and poised to correct, making it the perfect time to sell at the current price. According to experts, such as those at CCN, some investors can spot the time to sell within minutes of a price correction.
Fundamental Analysis (FA)
On the other hand, fundamental analysis treats the crypto asset as a service that provides value to users and the market. It doesn’t require the investors to follow the day-to-day fluctuations in value. Instead, it focuses on network activity, partnerships, and developer contributions.
When combined, all of these prove that a crypto asset plays a role in the market and is actually used to store value or make transactions. It’s harder to quantify such a value, but it can often mean more than the TA’s value.
Why Using Only One Approach Falls Short
When using some of the most secure crypto exchanges out there, investors can be sure they have access to the raw data about the assets they are trading. However, they know very little about how crypto is used to solve real-world problems.
The same goes for the fundamental analysis only. It often ends up being about abstract ideas and the drive behind a cryptocurrency, but none of that shows that it’s profitable. The best investors are the ones able to combine the two approaches.
How to Combine Technical and Fundamental Analysis
The best way to go is to start with the fundamental analysis before even looking at the charts. The initial focus should be on transaction volume, network usage, and team credibility. Some of these aren’t easy to research, since they require expertise and often information that goes beyond IT.
For instance, Solana had a few outages in 2022, and at the moment, it seems like it’s not a reliable crypto. However, it was adopted by many major protocols despite their failures. This showed the investors that it’s trusted by those who intend to use it.
Technical Indicators
Once you’re sure of the fundamentals, the main use of technical indicators is to determine the optimal time to make the trade. Moving averages are used to spot trends, and Fibonacci retracements to locate support and resistance zones.
Tools such as TradingView, Coinigy, and CryptoQuant are most commonly used for creating and following charts during the process, but some users choose Glassnode and Nansen because they combine a fundamental and technical approach in a single interface.
Market Sentiment
Another important analysis that could serve as a bridge between the two approaches is the analysis of the market sentiment. One way to do so is to follow whale activity, because those who hold large amounts of crypto can often move the market themselves and often indicate broader sentiment.
Social media buzz also means a lot, as social media is seen as the hive mind of the crypto investors. It helps to follow governmental and regulatory activity as well, especially now when cryptos are getting more heavily regulated.
Market Cycles
It’s also important to be mindful of the market cycles that often appear for crypto assets. In bull markets, technical momentum and sentiment tend to dominate, and in bear markets, cryptos with strong fundamentals are the ones that can survive, because traders focus on projects with real-world utility beyond market movements.
To Sum Up
There are two main ways to assess the profitability of a crypto asset. These are known as the technical and fundamental analysis. One refers to the price movement, and the other to the asset’s intrinsic quality and the value it provides to users.
The best approach is to combine the two, as this gives you a true measure of how profitable a crypto asset can be. It’s also important to be mindful of the broader market context and public sentiment towards the asset. These could serve as a bridge between the two approaches, especially regarding whale activity.