Face-off: Fundamental vs. Technical analysis
Commentary by Leticia Martignon — a crypto learner
‘The TA shows it.’ ‘The fundamentals are there.’ Brought over from stock market trading, these statements indicate two very different approaches to evaluating a crypto asset. Which one you will lean more towards will depend on what kind of player you are.
As a long term crypto holder, I will reveal that I have a tendency to rely first and foremost on fundamental analysis. But I paid a price for learning two very important lessons.
First, let’s look at these two approaches. In a nutshell, technical analysis (TA) looks at the past performance and a variety of established trending indicators to predict price action in the short to medium term. This is independent of the project’s development stage, news, and macroeconomic situation, all of which will have an impact on price action and override TA trading trends, no matter how strong.
Fundamental analysis looks at the project’s technology, vision, team and a host of other fundamental factors that might predict the project’s short to long term performance. It evaluates the project’s individual inherent and underlying potential independent of intraday market conditions. Fundamental analysis, unless there is big news coming up, will not attempt to predict immediate price action.
Depending on what your trading type is, you will be spending more time analyzing one than the other.
I bought LUNA. You may shame me. The project had a lot of smart people excited and the team was rocking. The community was huge and a lot of other very promising projects were building on the ecosystem. I never invested in UST, mainly because I didn’t understand all of it. But I might have at a later stage, had the coin not disintegrated.
I was a beginner when I moved into LUNA, and there were indicators of risk that I could have caught if I had used a professional tool that would have allowed a part-time crypto buyer to gain access to more sophisticated research and evaluation.
The case for TA
When the UST depegged and LUNA came crashing down, a better understanding of technical analysis could have helped me either A) move out completely, or B) at least not buy more of it as it was coming down.
So, is technical analysis the way to go? As LUNA had come to its ridiculous bottom, I joined a few swing traders playing the volatility and helping a group of us previous holders gain back some losses. I was able, thanks to TA, to make good gains, sometimes 4X a day.
Bullish as ever
But these movements died down after the storm quietened. The play was done, and I was now facing the massive bloodletting that was caused by the LUNA/UST meltdown. As my positions had halved, I needed to reevaluate my thesis. Did I believe in crypto long term? Did I have the time to wait for the next bull run? Was I in the right positions? My answer was three times Yes.
Looking back at previous crypto bear cycles, we see that good projects have led the way during the subsequent bull runs. While you can have the occasional sh*tcoin phenomenon making huge gains due to entirely unpredictable factors, most bad tokens come down in a bear market and never make it back up — because the fundamentals aren’t there.
There are extremists on both ends of the analysis spectrum: Those that trade primarily intraday, and move in and out of a position within seconds, minutes or hours rather than days, weeks or months, might look exclusively at technical indicators of the token’s market movements and ignore whether the project has a long term viability. And some of them are making big bucks.
Those that look only at the fundamentals often place their bucks and just keep an eye on the general market movements every now and then, counting on the global upward crypto market thesis. Some of those have made it big as well.
Mixing up the game
While TA has brought me massive percentage gains in a short time frame, fundamental research is setting me up for the right positions of the future. It also helps me focus my attention on a few projects and predict price action when significant project development is under way.
In the meantime I’ve taken up day trading using TA for my fundamentally researched tokens to soften my portfolio losses. And while some of the former enthusiasts scream and yell about crypto right now, I’m still sleeping at night.
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Disclaimer: This is not financial advice, but the opinion of our commentator. Crypto is a risky and volatile asset. Kryptview cannot be held responsible for any investment decisions you make. Do your own research.