What are the differences between technical and fundamental analysis for crypto? Usually, in a crypto market, just as in any other traditional stock market, you can trade your assets both in the short term as well as in the long term.
This will determine whether you are a crypto trader or an investor. Depending on that difference, you should do either a fundamental analysis or a technical analysis before making any trading decision.
Fundamental analysis and technical analysis are usually used in the share markets while trading. However, these play a significant role in the crypto market as well.
It is important that you know the difference between the two types of analysis so that you know which method to follow for making your trading decisions.
Here in this article you will come to know much more than the basic differences. Read on.
13 Differences Between Technical and Fundamental Analysis
Typically, to define in a more concise manner, fundamental analysis is the process of analyzing the basic value of the crypto coin or its viability.
This is the process that helps one to determine whether a particular coin is overvalued or undervalued.
Technical analysis, on the other hand, is based on a few specific parameters and is primarily done to make short term investments, often for a day or a week.
Here are the differences between fundamental analysis and technical analysis in detail.
Fundamental analysis means determining the internal value of the crypto coin.
On the other hand, technical analysis is a process that involves determining the external value or the future prices of it.
2. Used By
Fundamental analysis is typically used by the crypto investors while technical analysis is preferred by the crypto traders mainly.
However, there is no harm in using both for a better result and making more effective trading decisions.
The purpose of fundamental analysis is primarily to determine the future performance of the specific asset.
In contrast, technical analysis is mainly used to ascertain the immediate performance of the coin so that the entry and exit points can be determined.
Fundamental analysis is good to determine the pattern of the financial performance and basics of the crypto asset.
Fundamental analysis is best to use for investment and its allied functions while technical analysis is good for the trading related activities only, such as buying and selling of crypto coins.
Fundamental analysis is done on the basis of both the past as well as the current data of the crypto coin available while the focus of technical analysis is primarily on the past price data only.
Since fundamental analysis is for the investors, it is best suited for long term investments.
On the other hand, technical analysis is meant for short term investments made by day traders, swing traders, momentum traders and other types of crypto traders.
8. Hold or Sell
Fundamental analysis allows the crypto investors to know for how long they should hold on to their assets.
Technical analysis, on the other hand, tells about the right time to sell the coins, either in a day or a week.
The final decision of fundamental analysis is made on the basis of the evaluations made from the financial statements and other economic factors and statistics.
However, in technical analysis, it is done on the basis of the price of the stocks as well as the market trends.
10. Tools Used
In fundamental analysis, data is sourced from brokerage analysis, industry stats, news events, management processes and more.
In contrast, technical analysis is done by using different tools and price charts, as applicable, depending on the type of crypto coin you are dealing with.
11. Helps in
Fundamental analysis helps the investors to know and examine the trends going on in the entire crypto industry as well as knowing the economic outlook, financial data, and also the performance of the rival companies.
However, technical analysis helps in analyzing the market psychology based on the price movements of a particular crypto asset only.
The concept of fundamental analysis is primarily based on two specific factors such as Return of Assets or RoA and Return on Equity or RoE.
In contrast, the concept of technical analysis is mainly based on Dow Theory and the available price data.
For fundamental analysis the indicators include the assets and liabilities, expenses and revenues, Return on Equity ratio, Debt to Equity ratio and more.
On the other hand, technical analysis uses indicators such as the Simple Moving Average, support and resistance levels, MACD or Moving Average Convergence Divergence, EMA or Exponential Moving Average, Relative Strength Index or RSI, and more.
It is very important to know the difference between fundamental and technical analysis so that you can use either of the two, depending on the type of activities you perform in a crypto market. Such knowledge will offer much better results.