Hello, professor @imagen, I am glad to be part of your class about the Introduction to the principles of cryptoanalysis and I prevail to you with my homework post for the assignment that you provided to the seemians.

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What are the differences between Fundamental Analysis and Technical Analysis? Which one is used most often?

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Fundamental Analysis.

Fundamental analysis is an approach to identifying investments by examining data, like financial statements and economic reports, to help determine an asset’s value and health. Fundamental analysis plays a huge role in our financial markets and in the sense portfolio managers, analysts, credit agencies, banks, and many other investors rely on this type of analysis to help them understand an asset’s value.

Fundamental analysis studies the core underlying elements that influence the economy of a particular asset, that is to say, it attempts to predict price action and trends by analyzing economic indicators. Fundamental analysis can be explained as a method of estimating a security that involves attempting to evaluate its basic value by assessing allied financial, economic, and other quantitative factors.

Fundamental analysis aims at studying everything which affects the value of the asset, including macroeconomic factors such as the overall economy and industry conditions and company-specific factors including financial condition and management. It aims at using real data to evaluate the value of an asset with the main goal of generating a value that an investor can weigh against the current price of the asset and the goal of outlining the type of position to take with that asset.

Technical Analysis.

Technical analysis refers to a strategy an investor uses to examine an investment chart in an attempt to forecast its future performance. Some investors use technical analysis to attempt to identify when to enter or when to exit an asset position. When performing technical analysis investors use a variety of different techniques and tools, for example, moving averages, relative strength index, Fibonacci tools, among others to analyze a financial chart.

Technical analysis is primarily used to identify the next trend as early as possible which gives the trader the opportunity to ride the trend and take advantage of the potential rally. Traders have a lot of tools to help them in the quest to find the trend; for instance, employing popular price patterns such as the head and shoulders can aid in recognizing trends at their beginnings.

Trendlines assist traders to traverse the financial markets, that is if the price honors the trendline, the prevailing trend remains intact and if the trendline is violated, this is seen as a heads up that the triumph trend may reverse soon. Indicators and oscillators are also very popular tools for technical traders, and the MACG is among the most used. When the MACD crosses above the zero line, it signals an uptrend and when it falls below the zero line, it signals the beginning of a downtrend movement.

The difference between Fundamental analysis and Technical analysis.

Fundamental analysis	Technical analysis
1. Fundamental analysis focuses on the internal value a cryptocurrency asset has.	Technical analysis is done at the time when executing a trade to get the correct entry and exit point.
2. Fundamental analysis does not require much skill to perform.	Technical analysis requires a trader to be acknowledged of how cryptocurrency charts are read.
3. Fundamental analysis is performed to show how overvalued or undervalued a cryptocurrency asset is.	Technical analysis is performed to predict the future price movements of a cryptocurrency asset.
4. Fundamental analysis is majorly performed for long-term investments.	Technical analysis is majorly used for a short-term trade.
5. Fundamental analysis requires both the past and future data of the cryptocurrency asset to be performed.	Technical analysis only requires the past data of the cryptocurrency asset to be performed.
6. A cryptocurrency asset's future price is determined by its value.	A cryptocurrency asset's future price is determined using the price charts.

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Choose one of the following crypto assets and perform a Fundamental Analysis indicating the objective of the Project, Financial Metrics and On-Chain Metrics.

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Cardano (ADA)

Solana (SOL)

Terra (MOON)

Chiliz (CHZ)

Polkadot (DOT)

Cardano

With reference to the above question, I chose Cardano. Cardano is a cryptocurrency platform that was launched in 2017 after more than years of development. It is rather different from other cryptocurrency projects because it is built around peer-reviewed papers. So rather than writing a whitepaper and applying it straight to code, the Cardano team makes sure that experts from around the world read their papers, enhance them, and agree with the outcome which is a very different way of working.

image source

Cardano claims to be the third generation of cryptocurrencies with the first being Bitcoin and is essentially digital gold which is used to transfer and store virtual money but is plagued with scalability issues and the second generation started with Ethereum which brought smart contracts and improved scalability somewhat but not enough to become a global currency.

Cardano wants to solve three big main points of the current generation which is scalability, interoperability and sustainability. Cardano’s Ouroboros system solves these problems by adopting proof-of-stake instead of proof-of-work. Cardano’s is much more efficient because it doesn’t let everyone mine new blocks but instead, the network elects a few nodes to mine the next blocks which are called the slot leaders.

According to coinmarketcap, ADA is ranked fourth and is currently trading at $2.14 with a trading volume of $2,283,676,406 and a market cap of $70,545,979,317

screenshot source

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Make a purchase from your verified account of at least 10 USD of the currency selected in the previous point. Describe the process. (Show Screenshots).

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First and foremost I will show the screenshot of my verified Binance account from where I made the purchase.

On the search bar search for the pair of the cryptocurrency asset that you would like to purchase then click enter and in this sense I selected the pair ADA/USDT.

Another window will then popup where you will be required to enter the amount of ADA you would want to purchase then click on buy ADA.

A confirmation window will popup where you will be required to confirm your purchase then click on confirm to execute the trade.

After I have confirmed my purchase, the trade will thereafter be executed as shown below.

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Apply Fibonacci retracements to the previously selected asset with a 4 hour time frame on the platform of your choice. Observe the evolution of the price at 24 and 48 hours, did it go up or down in value? Look to identify resistance and support levels. (Show Screenshots at 0, 24 and 48 hours of purchase where the date and time are observed).

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Currently, Cardano is trading at $.2.05 and it seems it is still in the consolidation level between $2.09 to about $2.32. If you take a look at the chart above, you can see that the price bounced from the support area and if it's going to test the support level again around $2.09, a lot of buying pressure should come in causing a bounce from the support level. There will probably be a fakeout below $2.09 may be to take out some weak hands who have their stop losses and over-leverage their long positions in the area.

From a technical perspective, if we are able to retest the resistance as shown above, then the probability will be high to see a breakout through this resistance because Cardano already touched this resistance a couple of times and the selling pressure is getting lesser. If Cardano can close a strong 4-hour candle around $2.38 then I anticipate Cardano to be trading in the range between $2.35 to about $2.71 because the layer around $2.72 to about $2.78 is the next level of huge resistance traders need to take and also the last resistance.

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What are Bollinger Bands? How do they apply to Crypto Technical Analysis? With which other tool or indicator do you combine Bollinger Bands to analyze a Crypto? Justify your answer.

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What are Bollinger Bands?

Developed by the technical trader John Bollinger, a Bollinger Band is a technical analysis tool defined by a set of lines plotted by two standard deviations positively and negatively away from a simple moving average, that is to say, traders use the technical tool to identify extreme short term prices in a particular asset.

The indicator is generated by marking the average of the set number of prices along with two trading bands above and below. The outermost bands are generated by computing one standard deviation from the moving average in the sense of addition and subtraction. Under normal conditions, traders will nearly always find the price of an asset to trade within the bands. The bands will expand and contract as the price action of the asset being studied becomes volatile.

How do they apply to Crypto Technical Analysis?

One of the main concepts to understand when using Bollinger bands is that periods of low volatility generally tend to be followed by periods of high volatility and vice versa. In other words, if a trader notices that the Bollinger Bands start to pinch together, then there is a reasonable chance that the volatility will increase and the trading opportunity will soon appear.

Another method of using the Bollinger Bands is to note when the price of an asset moves beyond the upper or lower barriers. When the price moves above the upper Band, prices are thought to be overbought and could be due for a pullback. Conversely, a move below the lower Band suggests that the price is oversold triggering a buy signal.

With which other tool or indicator do you combine Bollinger Bands?

The fact that the Bollinger band squeeze does not give any assurance, a trader ought to make use of other aspects of technical analysis to show a confirmation of a directional break. In addition to basic chart analysis, a trader can also apply complementary tools to look for signs of buying and selling pressure within the consolidation. Momentum oscillators and moving averages will have no use during a consolidation because these indicators simply flatten along with price action.

Instead, a trader should consider using volume-based indicators such as the money flow index (MFI) or the on-balance volume (OBV). Signs of accumulation increase the chances of an upside breakout, while signs of distribution increase the chances of a downside breakout.

This chart shows Cardano with the Bollinger band squeeze occurring, that is to say, the bands moved to their narrowest range in months as volatility contracted and the indicator window shows money flow weakening and below 50 levels. Notice that the Money Flow stayed below its 50 centerlines and continued lower as we had the Bollinger band breakout. Money Flow readings below 50 reflect distribution or selling pressure that can be used to anticipate or confirm a support break in the asset.

Also, notice the second Bollinger band squeeze above and the imminent breakout. During the squeeze, notice how money flow stayed above 50 levels, which showed accumulation during the trading range. Signs of buying pressure or accumulation increased the chances of an upside breakout and as the price closed outside the upper Bollinger band, we also had the money flow increasing even higher which confirmed the move. Paying attention to the volume is one of the ways how a trader can increase the chances of finding valid Bollinger Band squeeze breakouts.

Therefor I would like to thank professor @imagen for such an awesome lecture about the Introduction to the principles of cryptoanalysis which has greatly improved my sense of analyzing the cryptocurrency markets.