5. How to trade Bitcoin ?

Analysis Methods: Fundamental vs. Technical

Can I predict Bitcoin’s price movement?

The short answer is that no one can really predict what will happen to the price of Bitcoin. However, some traders have identified certain patterns, methods, and rules that allow them to make a profit in the long run. No one exclusively makes profitable trades, but here’s the idea: at the end of the day, you should see a positive balance, even though you suffered some losses along the way. People follow two main methodologies when they analyze Bitcoins (or anything else they want to trade, for that matter) – fundamental analysis and technical analysis.

Fundamental analysis

Tries to predict the price by looking at the big picture. In Bitcoin, for example, fundamental analysis evaluates Bitcoin’s industry, news about the currency, technical developments of Bitcoin (such as the lightning network), regulations around the world, and any other news or issues that can affect the success of Bitcoin. This methodology looks at Bitcoin’s value as a technology (regardless of the current price) and at relevant outside forces, in order to determine what will happen to the price. For example, if China suddenly decides to ban Bitcoin, this analysis will predict a probable price drop.

Technical analysis

Tries to predict the price by studying market statistics, such as past price movements and trading volumes. It tries to identify patterns and trends in the price, and based on these deduce what will happen to the price in the future. The core assumption behind technical analysis is this: regardless of what’s currently happening in the world, price movements speak for themselves and tell some sort of a story that helps you predict what will happen next.

So, which methodology is better?

Well, as I already said in the previous chapter, no one can accurately predict the future. From fundamental perspective, a promising technological achievement might end up as a flop, and from technical perspective, the graph just doesn’t behave as it did in the past. The simple truth is that there are no guarantees for any sort of trading. However, a healthy mix of both methodologies will probably yield the best results.

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