learn crypto

Pick your strategy: Trading vs. investing: Lesson #4


This new 11-part series is designed for beginners who want to invest in cryptocurrencies but need more information before taking the plunge. Our goal is to provide clear and concise explanations of the fundamental concepts in the world of cryptocurrencies.

Over the following weeks, we’ll publish a weekly lesson covering one topic regarding investing in cryptocurrencies. Each lesson will take less than 5 minutes to read. At the end of the course, you will better understand how to invest in cryptocurrencies, what to invest in, and when is the right time to do it.

Are you contemplating entering the crypto markets but need clarification on the differences between trading and investing or fundamental and technical analysis? This comprehensive lesson will help you understand these distinctions and guide you toward financial success.

🏦 Trading vs. Investing

While both traders and investors aim to make profits in the financial markets, their methods, objectives, and time horizons differ significantly:

  • Investing: Investors focus on long-term wealth accrual, using fundamental factors to identify potential investment opportunities. They are less concerned with short-term price fluctuations and typically have a longer time horizon for their targeted returns. Investors seek to build wealth over years or even decades by analyzing economic and financial indicators to make informed decisions about specific assets.
  • Trading: Traders capitalize on market volatility, entering and exiting positions more frequently, seeking smaller returns with each trade. They primarily rely on technical analysis and typically have shorter time frames for their trades, ranging from a few minutes to several days or weeks.

📈 Fundamental Analysis vs. Technical Analysis

Fundamental and technical analysis are two distinct approaches to evaluating financial assets:

  • Fundamental Analysis: This method assesses an asset’s valuation by examining economic and financial factors to determine if the asset is fairly valued. Analysts study macroeconomic circumstances, industry conditions, and the business connected to the asset. In the case of cryptocurrencies, fundamental analysis may also involve on-chain metrics derived from public blockchain data, including network hash rate, top holders, number of addresses, and transaction analysis. However, due to the speculative nature and lack of a standardized valuation framework, fundamental analysis is currently less suitable for cryptocurrencies.
  • Technical Analysis: This approach is based on the idea that historical price action can indicate future market behavior. To evaluate a market’s strength or weakness, technical analysts study past trading activity, such as price action, volume, chart patterns, and technical indicators. This method is widely used among cryptocurrency traders, as the speculative nature of the market lends itself well to technical factors.

💡 Combining both approaches for optimal results

Choosing between fundamental and technical analysis ultimately depends on your trading strategy and personal preferences. However, using both can be highly beneficial, providing a more comprehensive understanding of the market. Combining different trading strategies can help you find more reliable investment opportunities and eliminate biases in your decision-making process.

For instance, you can use fundamental analysis to identify undervalued or overvalued assets, then apply technical analysis to time your entry and exit points in the market. By leveraging the strengths of both approaches, you will be better equipped to navigate the complex world of financial markets and make informed decisions.

In summary, whether you’re interested in trading or investing, it’s essential to understand the differences between these two approaches and the types of analysis best suited to your strategy. By combining fundamental and technical analysis, you’ll be better equipped to navigate the complex world of financial markets and make informed decisions.

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The views, thoughts, and opinions expressed in the text belong to the author and not necessarily to the author’s employer, organization, committee, or other group or individual.

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