Good price forecasting requires the use of various strategies and methods to make correct predictions. The 3 common methods used in predicting prices of cryptocurrencies are Fundamental analysis, Technical analysis and Sentimental analysis.
Fundamental analysis
Fundamental analysis is the act of forecasting the prices of cryptocurrencies based on fundamentals. When deciding on a cryptocurrency project to invest in, there are fundamentals to look out for… fundamentals like what the project is about, the project team, what makes the project unique, the coin or token supply,...
whether the coin or token has a max supply or not, the use cases, the benefits and features of the project, how active is the team behind the project, is the project community supportive, project concept, social reach, is the project doing something new, does the project have a working product etc. All these are core fundamentals to look out for when doing price forecasting.
Technical analysis
Technical analysis is the act of forecasting the prices of cryptocurrencies using data and information from sites like tradingview, coinmarketcap and coingecko - charts, current price and price history, signals, statistics, support and resistance, all-time high prices, all-time low prices, 24hr volume, price breakouts and other technical data and information.
Most cryptocurrency traders like to make use of technical analysis because it is the most effective method of price forecasting for day trading. For example, a trader can look at the chart of AAVE, pays attention to the support and resistance levels, price action in the past 24hrs, the date of all-time high, to get a close prediction of the future price of AAVE, and to know the entry or exit point.
Sentimental analysis
Sentimental analysis is the act of predicting the prices of cryptocurrencies based on narrative, sentiments, emotional feeling and news circulating around the project. We have the power of sentiments and what it can do for the price of a cryptocurrency.
A cryptocurrencies can remained stagnant for years, however, all it takes is the right sentiment or narrative to circulate around the project for the price to moon. In contrast, a price of a cryptocurrency can drop in a very short time because of the rumors, news, reports, negative narrative and sentiments circulating around the project.
This method of price forecasting doesn’t follow fundamentals or technical because even a cryptocurrency project without a strong fundamental can moon in price because of the narrative and sentiments around the project. Likewise, the price of good cryptocurrency project with great fundamentals can drop flat in price because of the negative narratives or sentiments surrounding the project.
When there is sentiments surrounding a project, technical analysis doesn’t apply because anything can happen at any time because of a news, report on social media platforms most especially Twitter. That is why sentimental analysis still remain a very effective method of price forecasting because a trader or investor can predict the price of a cryptocurrency based on the latest news, reports or tweets surrounding the project, to know when to buy or sell.
For instance, if there is a major positive news about a project, there is a high probability that the price of the cryptocurrency would increase… Likewise if there is a major negative news, reports, and social media posts about a project, there is also a very high probability of the price dropping because of FUD.