There are many factors that traders examine and analyze when choosing a crypto to trade. Some traders might look for trends on a chart while other traders check if the demand is increasing. Traders typically make use of two types of evidence which can be classified into two broad categories: fundamental analysis and technical analysis. On this article, we’ll focus on fundamental analysis.
Both types allow a trader to collect evidence to form a decision about the trades they are considering on placing in the market. The analysis will form the basis of the trader’s strategy. Some traders will use one type of analysis or a combination of fundamental and technical analysis to select trades and time their entries and exits.
Fundamental analysis is a method of evaluating the intrinsic value of an asset and analysing the factors that could influence its price in the future. This form of analysis is based on external events and influences, as well as financial statements and industry trends.
Fundamental analysis uses public data to evaluate the value of a cryptocurrency. There are various tools and techniques that can be used for fundamental analysis, but they have been categorised into two types of fundamental analysis: top-down analysis and bottom-up analysis.
Top-down analysis takes a broader view of the economy, starting with the entire market before narrowing down into a sector, industry, and finally a specific token/coin. Conversely, bottom-up analysis starts with a specific token/coin and widens out to consider all the factors that impact its price.
So investors who follow these analyses will expect that they can buy token/coin with favorable recommendations because such token/coin should have a higher probability of rising over time. Likewise, token/coin with unfavorable ratings are expected to have a higher probability of falling in price. Such token/coin are candidates for being removed from existing portfolios or added as “short” positions.
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