The cryptocurrency market has been developing accordingly to the development of the technology, making it the market which grabs the most attention from the investors and the media. People talk and write about how they have managed to earn a decent sum of money by trading cryptocurrencies, which inspires others to do the same. Even those who have never thought about investing, have done so because the predictions say this is the market of the future.
Cryptocurrencies are software, they do not have a physical existence anywhere, except within the program, where they are stored as a code. The program is shared by a network of computers. They are not currencies that “exist” on the internet, as people like to say. As such, they are perfectly free of any kind of control from the different levels of authority, which is also one of the reasons the interest in their trade is a growing trend. As tempting as it looks, it’s not an easy job everyone can be successful at. Reading internet articles from unknown sources may raise interest and motivate people to invest, but a certain level of knowledge about the market and the way it functions is important if one wishes to avoid the risk of losing the investment. This article will give you a couple of reasons why it is important to analyze this market when you’re new to the crypto world.
1. Developing a trading strategy
One characteristic these digital currencies are known for is they are very volatile. This means that if you invest in one, the story doesn’t end, you need to be very prepared that the price will go up and down all the time. What are the conditions under which this is all happening? it’s difficult to say. All of this marks the importance of having a trading strategy. Strategies are various, and differ from the type of currency you plan to trade or mine, osoblanco.org can illustrate a couple of useful ones for bitcoin. What is highly suggested for beginners is to also invest time in attending different webinars available all over the internet, and arm themselves with facts and knowledge about the turbulent market such as this one.
2. Noticing the price trends
When you make peace with the fact that the market is one of the most turbulent ones, you will accept the fact the price trends can change quickly in a short period of time. Since these assets are rather new in the financial market, there are no historical data based on which you can do the research and create expectations. The only comparable moment in history dates back to 2012. However, a lot has happened since and it should be enough for aligning and using the chosen strategy that will eventually increase your chances of profit.
What you can notice from the last two years is that the situation regarding the price of a certain currency has changed from dropping 20% down to an amazing recent increase, experts predict to rise even further as the end of 2020 is nearing. For beginners, the useful thing to be aware of is that the cause of this rise in prices today was the drop that happened two years ago. This is the pattern of crypto prices, or their market cycle.
3. Risk assessment
For ensuring the profit gain, there is no more important skill than assessing the risk. It can become a boring activity since the assets used in this market are prone to change in a short period of time. Beginners need to be able to understand it’s more important to adequately balance the portfolio, and know how much to risk, then entry and exit. Learning this can take a lot of time, plus it can result in losing a couple of times before you learn. Some even managed to bankrupt. That is why beginners are advised not to invest too much in a single portfolio, but to take slow and invest a little at a time.
To control loss and gain, there are tools provided by different trading instruments. They include things like price alerts.
4. Knowing the difference between trading and investing
A lot of beginners when they first get interested in the subject mix these two terms, thinking they are the same. Well, no. Investing means that a person buys a currency and gets to keep it, in the long term. The primary motive behind buying is the belief that regardless of what’s happening on the market, the price of their assets will eventually rise.
On the other hand, trading means that one buys the currency, carefully follows the price movements on the market, and at one point decides to sell it. So, he doesn’t keep it long term, but rather sells it as soon as there’s a movement in the value on the market. The difference truly lies in how much time they keep it. Buyers are long term keepers, investors are short term.
5. Learning where your advantage lies
Analysis can be performed not only on the whole market, but also on a specific digital asset of our choosing, or a concrete offer of the token. The whole point is to learn where the advantage lies.
Typically, two types of analysis are performed on financial markets such as this. Fundamental and technical. Both are serving the same mission, to help investors or traders make a suitable decision regarding the purchase or a sale.
The advantage of the market is gained by going through all the past data, financial movements, price movements, and other important factors.
Fundamental analysis is usually performed by long-term investors and those that are usually not interested in daily price movements. Many segments such as communication, product-market fit fall into the segment of this analysis.
The technical analysis concentrates more on how the prices moved through history, to be able to predict in which direction they’ll move in the future. It is important to point out that nothing can guarantee the movement will go as predicted by the analysis.
Cryptocurrency market analysis is important because it aims to give you directions to make correct decisions and grow into a better investor or trader.