update 11 October 2021

Fundamental Trading and Technical Trading: Which one is Better?

When it comes to trading, fundamental trading and technical trading are the primary schools of thought before approaching any market. Although both methods are at opposite ends of the spectrum, they are still used to forecast and research future cryptocurrency prices. They also have their advocates and adversaries, just like any investment strategy. Let’s have a more in-depth look at the two.

Fundamental Trading

Fundamental trading is a method that involves evaluating the economic well-being of a country, and by extension, the currency. It trades on a detailed examination of a crypto’s intrinsic value by looking at the underlying factors influencing the economy, company, and industry. Some of these factors include growth prospects for the economy, revenues, expenses, income, the company’s competitive factors, and the expected return on equity or assets in the industry.

The main idea is to create a quantitative value for the cryptocurrency that would feature the above factors. Fundamental trading does not rely on trading swings and short term pricing, but it’s a long term investment approach because it may take time to realize the intrinsic value. As this approach looks at future expectations, it builds a valuation based on backward and forward information. 

Fundamental trading can also help a trader predict the future value of the cryptocurrency and determine if it is overvalued or undervalued. Fundamentalists can discover investment opportunities not yet recognized by the market as a whole and can produce a profitable investment for a trader.

Technical Trading

Technical trading evaluates investments and identifies trading opportunities by analyzing statistical movements gathered from trading activity. Tools used in technical trading focus on scrutinizing the ways supply and demand for a cryptocurrency will affect changes in price, volume, and implied volatility. Technical trading creates short-term trading signals from various charting tools. This approach also helps improve the evaluation of a crypto’s strength or weakness relative to the broader market or one of its sectors, which can help a trader improve their overall valuation estimate.

This type of trading attempts to forecast the price movements of literally any cryptocurrency that is generally subject to supply and demand forces. A trader can then capitalize on pricing opportunities and trends identified in the market activity around each share. However, this approach reflects on being a backward-looking methodology since it is purely based on historical market activity.

Fundamental Trading VS Technical Trading: Key Differences

Fundamental trading examines a cryptocurrency by identifying its intrinsic value for the long term investment. On the other hand, technical trading involves evaluating and forecasting the price of a cryptocurrency in the future, depending on the price movement and volume of transactions. It works best with short-term investments since it uses price charts in the market.

Technical trading uses shorter periods to analyze cryptocurrencies than fundamental trading, employing more extended periods since investors want to invest in a cryptocurrency whose value will increase in several years.

Technical analysis is concerned with trading, while fundamental analysis focuses on investment. Traders use technical analysis to make short term trades as it gives the best time to enter or exit the market., Most investors use fundamentals to buy or hold cryptocurrencies since it focuses on ascertaining the cryptocurrency’s actual intrinsic value.

Technical trading involves making decisions based on prices and market trends, whereas fundamental trading consists of making decisions based on the availability and statistically evaluated information. Therefore, fundamental trading considers both past and present data, while technical trading only reviews past data.

Fundamental trading uses financial statements like income statement, balance sheet, cash flow statement, etc. these data calculate ratios and metrics that reflect the crypto’s performance and growth rates. On the other hand, technical trading relies on chart patterns, price actions, and technical indicators like moving averages and oscillators calculated from cryptocurrency prices to analyze the future price trends.

Relationship Between Fundamental Trading and Technical Trading

Whether fundamentals drive technicals and vice versa or strong technical patterns can cause strong fundamentals among the many dilemmas traders face. Even when fundamental trading is at turning points, technical trading can continue to follow a strong or weak pattern, which might cause them to be out of sync. Besides, a cryptocurrency shock can also make technical trading out of sync with fundamental trading, either positive or negative.

Technical trading is best for cryptocurrencies in the short run unless there is an unforeseen shock. For example, technical traders can respond to a clash in real-time and don’t have to wait for the next reporting date. Using the charts will result in higher profits—Crypto chart and pattern form using the buying and selling activities which reflect the real-time cryptocurrency behavior.

Also, fundamental trading may lead to long-run profits when the market charts fail initially after a shock by taking advantage of short-term mispricing when the surprise causes the markets to overreact. It may be wise to follow fundamental trading after a collapse because news is temporary and may be positive or negative to a shock’s fundamentals. On the flip side, technical trading may provide the opportunity to take advantage of a correction after the news is delivered. So, both trading approaches should be in sync in the long run.

Closing Thoughts

Technical trading is a tactical, short-term decision-making method that enables traders to build a vision of the market and make the right move at the right time. Fundamental trading should be applied strategically over more extended periods to help a trader obtain information about the overall state of the market and attractiveness of a specific cryptocurrency.

Btc
Bitcoin
$63.859
price
1.95874%
price change
BUY NOW

An investor can get confused in choosing between fundamental and technical trading as an investment strategy, but considering combining both approaches may provide the best opportunity to draw a complete investment picture with the most profits. Both trading approaches can create a confluence of information that should give a better investment than either used alone.

More posts

Earliest Cryptocurrencies with DeFi-like Characteristics

A recent Chainalysis report shows how Europe accounts for 25% of the world's cryptocurrency transactions. The news came as a surprise to many. However, Decentralized Finance (DeFi) is the center of these crypto transactions. So, it takes about 50% of the total amount from the region's trades. DeFi is an innovative niche that many enthusiasts still have not explored fully. Nevertheless, numerous smaller crypto assets with similar characteristics to DeFi tokens already exist. Binance Chain, PancakeSwap, and Uniswap are examples…

Which Altcoins Made The News in H1 of 2021

Altcoins are constantly jostling to make a mark in the crypto world. After Bitcoin and Ethereum, the race to be the third cryptocurrency force keeps heating up every year. Many strong contenders with different use cases promise more than what the big two currently offer. As a result, many are making their mark in a big way, for good and not so good reasons, as long as they stand out from meme coins that ride the celebrity popularity wave and…

Top Altcoins with the Most Potential For 2022

In 2017, altcoins became a thing when thousands of Bitcoin competitors flooded the market. Today, many altcoins have evolved beyond expectations and are stand-alone products with unique real-world applications. Furthermore, they provide an opportunity for investors to diversify their portfolios. Identifying the best cryptocurrencies to invest in can be overwhelming for most newbies, primarily since thousands of them exist. We bet you're having difficulty finding the most promising altcoins in the crypto space. So, this article should help you get…

Institutional Investors who have Expanded their Portfolio in 2021

Cryptocurrency and blockchain investments from the first 9 months of 2021 have surpassed last year's grand total. In the first half of 2021, the worldwide crypto and blockchain activity was $8.7 million, more than double last year's figures. It is a significant sign that institutional money is streaming into the crypto space. Furthermore, it increases the investor base, and thus the institutional awareness and knowledge of this sector are also surging. The "institutional adoption" of crypto is already underway. Today…

Understanding Cardano, IOHK, and EMURGO

Cardano is the first decentralized public blockchain platform that developed on a research-first driven approach. Charles Hoskinson, the co-founder of Ethereum, created it in 2015 and later launched it in 2017. It comprises a development team of global researchers and engineers. This platform's development continued thanks to academics and computer scientists and their peer-reviewed papers. The Cardano ecosystem involves three founding entities that work together. These partners are EMURGO, IOHK Company, and The Cardano Foundation. Cardano in a Nutshell Cardano…

Billionaires Who Have Publicly Showed Interest in Cryptocurrencies

The cryptocurrency boom of 2017 saw a rise in their acceptance from prominent economic figures. Since then, their volatility hasn't stopped significant investments in them. Today there's a push for their global mass adoption. Industry-leading lights and renowned celebrities have expressed their support for the assets. Nothing best captures this reality than Forbes's recent list of the world's wealthiest people. It indicates a growth in the number of crypto billionaires over time. From an asset that courted controversy and skepticism,…

Which is the Most Crypto-Friendly Country in Europe?

When cryptocurrencies made their first appearance in the financial world, many people were skeptical about them. Governments mainly felt threatened because the digital currencies dispelled the need for central banks. A little over a decade later, cryptocurrency mainstream adoption has made strides. However, many jurisdictions remain hostile toward digital currencies.  There's no denying that cryptocurrencies present several advantages, which is why many enthusiasts and investors are jumping on board. However, for mainstream crypto adoption to go globally, jurisdictions must accept…

Crypto Signals to Stop You from Succumbing to FOMO Woes

In the case of cryptocurrency, FOMO is popular due to enormous and rapid gains. However, as more people realize these great opportunities, they are afraid that they will miss them. When you think that you can win a particular cryptocurrency, you begin to buy it in huge numbers. As numerous investors and traders believe that blockchain and crypto are in the early stages and have excellent development potential, FOMO appears to be more than just a driving force in the…

Understanding Ethereum’s Solidity Programming Language

Ethereum is a cryptocurrency capable of storing value and making payments. However, that's not all. It is also a fully-fledged platform for creating smart contracts, and this is where Solidity comes in. Solidity is a high-level language for implementing smart contracts. It gets its inspiration from C++, Python, and JavaScript and should target the Ethereum Virtual Machine (EVM). This article will uncover all about the Solidity programming language and how it works. But first, we'll look closer at the Ethereum…

Hedera – A Comprehensive Guide to a Revolutionary Consensus System

Blockchain is the digital environment supporting cryptocurrencies and decentralized app (DApps). You may know it as one of the greatest innovations of the 21st century. However, this remarkable invention has its shortcomings. For instance, it is difficult to scale and consumes too much energy, making it bad for the environment. Fortunately, some projects aim to solve these issues. One of them, Hedera, has come up with a potentially better alternative to blockchain: Hashgraph consensus. Consequently, Hedera used it to open…