Cryptocurrency trading is a great opportunity for clever investors to make money aside or even turn it into a full-time job. If you are interested in this type of trading, you should know that clever investors don’t make random decisions. On the contrary, they choose data-driven solutions to maximize the odds of gaining profit.
The first thing they do is analyze cryptocurrency market charts as it is the only way to figure out the trends and try to predict where their digital coins are headed. With nearly three thousand cryptocurrencies currently available online, it takes a serious piece of research to learn the fundamentals and distinguish between top-performers and underachievers.
However, lots of traders find data analytics to be complex and confusing. This is exactly why we prepared for you a list of seven simple tips to better understand cryptocurrency market data. Let’s check it out!
1. Data analysis relies on Dow Theory
Dow Theory represents the essence of cryptocurrency market analysis. The basic idea of Dow Theory is that market price action reflects all available information. In other words, the trading strategy depends on all the former, current, and future cryptocurrency-related information.
There are tons of factors influencing the price of a crypto coin, so the actual fluctuations are not exactly random in nature. On the contrary, the price depends on traditional rules of supply and demand as well as marketing activities, public opinions, and many other aspects.
It’s as if you are looking for the best resume services or paper writing services – you will try to analyze a broad scope of parameters such as prices, quality, timing, and so on. But when analyzing cryptocurrency, you should first look at the price chart in a given period.
2. Mind the three phases of market trends
Another thing you need to understand is that almost every digital currency is going through three stages of market trends. Here they are:
- Accumulation phase during which knowledgeable traders begin purchasing or getting rid of the coins. They do it contrary to popular belief, but the price remains intact for a while.
- Absorption phase during which other traders start following the same pattern. The price then reaches historical peaks or lows.
- Distribution phase during which the price stabilizes once again due to the natural laws of supply and demand.
3. Think about the timeframe
Cryptocurrency trading takes place in a certain timeframe, which is why we can divide all stakeholders into short-term and long-term investors.
The former are intra-day traders who do a lot of transactions quickly. In such circumstances, it’s not surprising to learn that intra-day traders should analyze short-term trading charts with data covering the last 15 minutes, an hour, or four hours maximum.
Long-term investors play it safe, so they don’t have to analyze crypto prices every hour. They use long-term charts instead, ranging from daily reports to weekly and even monthly analyses.
4. Market cap is a big deal
The fourth way you can analyze cryptocurrency market data is by following the market cap. It is a simple mathematical formula for calculating the total value of a given currency. By definition, cryptocurrency market capitalization is the current price of coin times the total number of coins in the market, often referred to as circulating supply.
For instance, let’s say there are 1,000 coins called ABC available at $2 per piece. In this case, the market capitalization of ABC is $2,000.
Large-cap coins are much more stable, but they give you little to no room for growth. On the other side, small-cap cryptocurrencies are very risky, but they give traders the chance to earn a lot of money.
5. Relative Strength Index
Crypto investors also look for the Relative Strength Index (RSI), a parameter focusing on two features of the market price movement - speed and strength. As such, RSI is basically a comparison between the current price of a cryptocurrency and its historical performance.
What you can learn from it is whether traders are overbuying or overselling a given digital coin. RSI is similar to online reviews for the research paper service and assignment help agencies as it reveals how clients react to the existing offers.
6. Keep an eye on market emotions
Although based on superior technology such as blockchain, cryptocurrencies are also dependent on irrational features like market emotions. We often call crypto investors “the herd” because traders tend to follow the crowd and do what everybody else is doing at a given moment.
They do it because of market emotions such as optimism, pessimism, anticipation, and greed. Market emotions should not impact your personal decisions, but you should keep an eye on other traders and see how they react to the current trends as it might help you to go against the herd and earn a lot of money quickly.
7. Pay attention to Bitcoin
You don’t need to be a cryptocurrency master to understand the influence of Bitcoin on the overall market. Make sure to monitor the price of the most popular digital asset as it almost always affects the prices of other cryptocurrencies (also known as altcoins).
Well, the answer is easy – if Bitcoin grows, it makes other prices go down because the majority of investors want to capitalize on Bitcoin. The same logic applies the other way around. The best time for altcoin growth is usually when Bitcoin is stable and not going down or up for a while.
Up to You!
Cryptocurrency trading is not a game you are supposed to enter blindfolded. There is nothing random about the digital coin market, which forces you to spend a fair share of time learning and analyzing the most important trends.
In this post, we showed you seven simple tips to better understand cryptocurrency market data. Now it’s up to you to make a move and outperform competitors with data-driven trading decisions!