1.- In your own words, what is fundamental analysis? Do you think it is important for a trader? Justify the answer.
Fundamental analysis : There is this saying that goes like this - " show me your friend and I will tell you who you are". This is exactly what fundamental analysis is all about. It is a kind of analysis that is based upon finding the value of the project behind a Cryptocoin. This kind of analysis operates on the basis that, 'if I can understand the value of project behind a coin, then I can decide if it is worth investing upon'. Fundamental analysis is a good kind of analysis that can be used to discover undervalued coins. Parameters that fall under fundamental analysis are;
1. Financial Metrics: this includes market rank, market capitalization, market price, circulating supply, maximum supply, total supply, all time high and low and market dominance.
- On chain metrics: this includes number of wallets created, total transactions and total staked volume.
3. Project fundamentals this includes the use cases, white paper, development team/ founder and the consensus mechanism used.
In my understanding, I don't think that the fundamental analysis is useful to traders. Traders as a matter of fact donnot care to know the fundamental analysis of the coin which they trade. This is because they require a kind of analysis that will expose them to any marginal/ minute market movement and fundamental analysis cannot do that hence they depend solely on technical analysis.
Another point is that time that could have been used to observe a pattern would then be spent studying things such financial Metrics or on chain metrics which would not tell about the volatility of the Cryptocoin price at that particular time.
2.- Explain what you understand by technical analysis and show the differences with fundamental analysis.
Technical analysis: is the analysis of cryptocurrency using a detailed chart. Charts like the candle stick is detailed such that it can show the open, low, high and close price of the crypto market hence it is employed by most traders. Technical analysis involves the speculation of the the next price move of a given crypto market from result gotten from the study of the markets past. Indicators and patterns and strategies are employed along side the chart to help analyse better. Since it has been discovered that the market moves in some kind of a cycle then, technical analysis is used to study the market past and then be able to identify and leverage it when ever the market past reoccurs.
Below are some of the differences between the two kinds of analysis.
| sn | Fundamental analysis | Technical Analysis |
|---|---|---|
| 1 | Tries to know the quality of a project or Cryptocurrency | Tries to predict the price of a cryptocurrency Via chart cycle interpretation and identification |
| 2 | Seeks to identify undervalued stocks | Seeks to identify patterns, signals, and the use of indicators |
| 3 | It tries to study and understand the cause(purpose, use, developers, etc) | Tries to study and understand the effect |
| 4 | This kind of analysis is not affected by external news or influncial personalities(like china ban on crypto) | This analysis could be greatly swinged about by various external news(* like Elon musk delisting BTC as a potential currency for Tesla product purchase*) |
| 5 | It is done via Economic factor Analysis | It is done via careful chart study |
| 6 | Every project has its own,definition and purpose hence has differed fundamentals | Since strategies move in cycles then, two or more tokens could move in the same cyle at different times or simultaneously |
| 7 | It consumes more time since the informations are not usually embedded at a place. | Consumes less time since the chart and knowledge of various cycles and application of indicators is all that is needed |
| 8 | It is very useful when trying to invest in a long term hence long term invest employ this kind of analysis | It is useful in the analysis of a short term hence it is adopted by traders |
3.- In a demo account, execute a sell order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 hour and 30 minutes. Screenshots are required.
For this Demo trade, I have used Roboforex demo trading tool . Firstly, I set my chart time frame to 1hr and then I select BTCUSD pair.
• Next, I proceed to New Order where I create a new order. Here I chose Sell Limit. Next, I setup my Stop Loss by the left and then my Take Profit by the right. Then I click on Sell Limit order.
Below is a screenshot of the order I have opened and the and the outcome.
4.- In a demo account, execute a buy order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 day and 4 hours.
For this task, I have also used the BTCUSD pair with a time frame of 1 day. Indicating my support level with a red line and resistance level with a green line.
• Here I click on New order to create a new order. I then select Buy Limit and then I fill in my stop loss and Take Profit prices.
5.- Explain the “Hanging Man” and “Leaking Star” candlestick patterns. Show both candlestick patterns on a cryptocurrency market chart. Screenshot is required.
Hanging Man: The hanging man is mostly used for sell setups I.e when we want to short the market. It is a bearish reversal pattern that consist of one candle with it's head up and it's body hanging downwards. It tries to indicate or show that more selling pressure is about to come. The hanging man relates that sellers are appearing more in the market and hence the in tease in selling pressure.
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6.- Conclusion.
Technical analysis is a kind of analysis carried out mostly by traders in the quest to understand the pushing forces of price, the market trend and how to profit from the market of a crypto asset.
Fundamental analysis is mostly used by long term investors who wish to just HODL the coin. Fundamental analysis entails making research to understand the authenticity of the project backing a particular crypto coin. As we know, no one will love to invest and make loss and so the need for fundamental analysis arises.
Regards to professor @pelon53