Vast and complex factors determine the movement of crypto prices, as the relatively new market still adjusts to the real-world economy.
Vast and complex factors determine the movement of crypto prices, as the relatively new market still adjusts to the real-world economy. Although the industry relies on decentralization and shouldn’t be affected by the course of the economy, slow economic growth can cause the demand for crypto assets to decline. On the other hand, a country’s flourishing financial state can contribute to booming crypto investments.
Still, there’s much more to the influences on crypto prices. Supply and demand, user sentiment, and government regulations determine the volatility of these digital assets. Moreover, media hype plays an important role in price fluctuations.
Investors use crypto charts to decide on their next move and diversify their portfolios, as they provide a clear picture of price fluctuations. In addition, strategies from fundamental and technical analysis offer a more thorough image of the market.
What are Crypto Price Charts?
Cryptocurrency price charts are part of the fundamental market analysis technique. They display historical prices over specific periods for users to understand how an asset navigates, among other things. Users leverage charts to track trends and predict future movements through patterns, which indicate opportunities for buying or selling.
Crypto charts are similar to those used in stocks, represented by an x-axis for time and the y-axis for price. There can be numerous variations of the charts, from line charts to candlesticks, that people use based on different preferences or specific benefits.
What Charts are Best for You?
As a beginner, you might find it challenging to learn how to read complex charts so that you can approach simpler forms like line charts. These are pretty straightforward to read, as they include only basic details about crypto, such as closing prices over a specified period, so beginners can leverage them for analyzing trends.
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However, intermediate or professional investors and traders use bar charts that show the opening, closing, high, and low prices for their preferred period. Candlestick patterns are also favored as they provide a more visually intuitive format, using colors to show whether the prices have risen or fallen.
What Essential Features do Crypto Charts Provide?
Trading crypto or regular assets can be done by analyzing patterns like the hammer formation, which usually shows the potential end of a price decline, followed by an upward price movement in the near future.
Crypto charts are considerably important in managing key support and resistance levels. During support levels, crypto prices tend to stop falling and reverse upwards, while a resistance level occurs when prices stagnate and stop rising. Knowing when these points happen helps investors set their entry and exit points to minimize losses and maximize returns safely.
Crypto Charts are Essential for Objective Investments
As the crypto industry is considerably volatile, crypto investors and traders are exposed to FOMO (fear of missing out), an emotional response to panic. This makes people sell or buy crypto assets out of fear rather than objective analysis of the market, hindering their capabilities to improve.
Relying on crypto charts and tangible factors sustains a healthy approach to crypto, as it supports making decisions based on real-time price changes. Another risky emotional response to the market includes different types of biases, cognitive errors, and prejudices that lead to irrational decisions.
What are Behavioral Biases in Finance?
Investing in crypto assets can be risky due to volatility and sudden trend shifts, but biases contribute to the challenges of investing. For instance, these are the most common types of biases in finance:
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- The confirmation bias makes people favor the information that confirms their preexisting beliefs. Unfortunately, this makes them ignore contradictory evidence;
- The recency bias affects people’s ability to consider historical data in preference to recent events, exposing them to a shortsighted approach to crypto;
- Overconfidence makes investors believe they have a higher level of trading skills than they actually do, so they take unnecessary risks;
Navigating these biases means taking the time to observe one’s behaviors when investing or trading. Once the bias has been discovered, it’s recommended that the approach be changed and diverse information sources found from which people can practice analytical rigor in using crypto. In addition, seeking and accepting peer feedback is essential.
Is Fundamental Analysis as Important as Technical?
Technical analysis in markets is more accurate when it comes to analyzing prices. On the other hand, fundamental analysis focuses on the value of the brand behind the actual asset, determining whether its prices are over- or undervalued.
In the stock market, this includes a thorough analysis of the company’s income statements, balance sheet, and other financial statements. On the other hand, fundamental analysis in crypto means looking into:
- Blockchain metrics: hash rate, active addresses, transaction values;
- Project metrics: the cryptocurrency’s white paper, its utility, and demand, as well as a roadmap;
- Financial metrics: market cap, liquidity, overall currency in supply;
How Can you Determine If a Cryptocurrency’s Brand Name is Reliable?
Besides the historical view on crypto prices, investors and traders must also look into the team behind the project. This may or may not offer an additional reason to invest, especially since established coins like Bitcoin have anonymous creators. Satoshi Nakamoto is the pseudonym for the person who designed the coin, but their real identity has not been shared yet. Still, the assets are leading the market and have become the most valuable cryptocurrency.
Still, when considering teams behind the projects, make sure they’ve established a believable white paper and are actively contributing to supporting transparency in the evolution of their project. Thoroughly analyzing the project’s behind-the-scenes will help avoid fraud, which is common in ICOs (Initial Coin Offerings).
Final Considerations
Understanding how price dynamics work in crypto is vital for being a successful investor. That’s why taking advantage of crypto charts helps investors and trades make the right decisions, as they consider the historical price movements to forecast crypto values. As this is part of the technical analysis, using fundamental research is best to learn more about the brand behind the cryptocurrency.
