Are you about to buy into an altcoin? Before you do, try to come to a sensible trading decision using a mix of fundamental analysis and positive technical analysis indicators.
Why consider fundamental analysis (FA)?
Fundamental analysis means assessing key economic, financial and social variables to help gauge the true value of a digital asset.
I look at FA as a way of sniffing out the long term viability of an altcoin by examining the purpose of its existence, the community of users and the legitimacy of those people behind its development.
The influencing factors are numerous.
Here is a nice way of narrowing them down: Introducing the S.A.F.E method to help determine the absolute strength of a coin.
- General media coverage. Bullish/Bearish?
- Social media trends. Twitter mentions? Threads?
- Recent or upcoming community events?
- Observing foreseeable reasons for FUD? (Fear, uncertainty and doubt).
- Trading activity. What is current volume of transactions?
- Developer roadmap. Is it stalling or progressive?
- Is the coin available on major exchanges? What is the current Market Cap?
- How long has coin been in the ecosystem? When was it created?
- Mineable/Pre-mined? Limited supply?
- Coin distribution. What % retained by dev team? Is the ICO capped?
- Marketing/Branding? Consistent message delivered?
- What problem does it solve?
- Does demand outweigh supply or vice versa?
- Future adoption rate and network effect?
- Is it an inflationary/deflationary cryptocurrency?
Do some significant research before taking a position. The S.A.F.E questions are a non-exhaustive list of fundamental factors that affect price. I refer to the list when getting involved in a coin that I may not know that much about. It helps me to rationally quantify the risk involved and serves as a handy reminder to exercise due diligence. Feel free to use this method and add more questions.
Why consider Technical Analysis (TA)?
Historical data tells us that understanding how to apply and read basic TA tools is enough to succeed in trading crypto assets. This is because the market is full of new players interpreting these tools in a similar fashion. When a chart is read by the majority of people in the same way they tend to reach similar conclusions and predictions. This leads to movements, breakouts and swings occurring when and where expected. The masses flock to buy/sell because the charts tell them to; driving the price direction and trading volume.
Psuedo-coded Bots are worth mentioning here as they drive this herd like trading activity. Each Bot is programmed to trade when an assets chart behaviour and conditions are favourable. They have built in strategies that automatically trigger trading activity when a set of TA indicators tell them to do so. This is yet another strong case for why TA tools are powerful indicators for cryptocurrency. If enough non-institutionalized investors place their financial decision making in the hands of Bots, the price of a certain digital asset will then respond as expected. You can rent a Bot for a monthly fee using cryptotrader.org, and from there set the custom trading parameters before plugging it into your exchange and letting it run 24/7. I’ve not yet utilized a Bot for the purposes of trading so I cannot truly recommend or discourage their use. At this particular time, having control and taking ownership of my personal finances is important to me so I currently have no wish to put them in the hands of AI. Who knows though, this might change for me as time goes on.
- Get more familiar with TA, at an elementary level, here
- Investopedia is also a great online resource for learning chart strategy and theory. I will look into the idea of profiling various chart analysis tools, such as RSI and MACD, on a recurring basis.
Ask this question with regards to an altcoin? Should you snog (trade short term), marry(“Hodl” long term) or avoid(throw in the sh*tcoin pile)?. Hopefully the content of this post will help you reach your own conclusions.
Everybody has different tastes. Traders however, generally speaking, play the field and are notorious snoggers.
Cathal – The Coin Movement
If you are new to the cryptospace then the best advice I can give you is this:
DO NOT jump straight in and invest all your money, jump straight in and invest your TIME.
Here is some reading material relevant to this blog post.