How to choose a concept for trading on the markets

Choosing a concept for trading is one of the first questions a "new" trader faces. How can you find something that suits you exactly and is also effective? Of course, you should study in detail each of them, their features, advantages and disadvantages, and choose the one that takes into account your trading style and personal preferences.

The trading concept determines the style and methodology of analyzing charts. The success of your trading directly depends on how much you understand the trading concept you have chosen.

Technical Analysis

Most beginners start their introduction to trading through the concept of technical analysis. Technical analysis has been one of the most popular trading concepts for decades. It is recognized all over the world, and for good reason - it is a working concept, although it is far from being the most effective.

Technical analysis studies changes in asset prices using historical price charts and market statistics. Technical analysis is based on the assumption that all possible information affecting the price is already reflected on the asset's chart. And if you manage to recognize past market trends, you can predict future price movements quite accurately. Technical analysis can be applied to any asset that has a history. In addition, the price of the asset is considered to contain all the necessary information and all the fundamental data is already factored into the price.

How does technical analysis work?

One of the main tools of technical analysis are support and resistance levels - price values from which price has previously shown a reaction. The price is considered to go from level to level. When the price approaches them, traders expect possible reversals or breakdowns of the levels and open positions accordingly.

Technical analysis is also often used in conjunction with chart analysis - it consists in searching for patterns or figures that are formed on price charts (e.g. Double Bottom, Triangle, Flag, Pennant, etc.). Traders usually identify patterns on charts on their own, without using additional tools.

To analyze prices, levels and patterns, charts that reflect price changes over a certain period of time are used. The most popular among traders are Japanese candlestick charts, line charts and histograms (bars). You can learn more about what Japanese candlesticks are here.

Technical analysis traders also often use indicators and oscillators. Each indicator or oscillator is an algorithm that analyzes data and displays the results in a certain form. Traders use these "signals" to confirm their hypotheses, enter the market, adjust their positions, and plan future positions.

Each of these indicators has at least one customizable parameter that can significantly affect the results displayed. As a rule, they have standard settings initially, but they can be adjusted as desired.

There are two main groups of such tools: trend indicators and oscillators.

Trend indicators provide information about who dominates the market - buyers or sellers, and also allow you to determine the strength of the trend and possible reversals.

Examples of such indicators are:

• Simple Moving Average (SMA): calculated as the average of the price over a certain period of time. It helps to smooth out price fluctuations and identify trends.
• Bollinger Bands (BB): consists of a moving average line and two surrounding bands. Used to identify overbought and oversold market conditions (potential reversals) and to measure volatility.

Oscillators are used to identify short-term fluctuations in asset prices. They also help to identify overbought and oversold market moments. However, unlike conventional indicators, oscillators are usually displayed as charts that fluctuate within a given range. Oscillators also include volume indicators, the purpose of which is to display market activity and the degree of interest of participants in a particular asset.

Examples of oscillators:

• Relative Strength Index (RSI): an oscillator that measures the speed and change in price movements. RSI values range from 0 to 100: values above 70 indicate overbought and below 30 indicate oversold. Thus, it signals possible market reversals.
• Moving Average Divergence Indicator (MACD): consists of two lines (MACD and signal line) and a histogram. It is used to determine the strength and direction of the trend, as well as possible reversal points.

In summary, technical analysis is one of the most popular concepts used by traders around the world, but it is definitely not the most effective. Many experienced traders who started their market journey with technical analysis gradually incorporate more effective tools from other concepts into their work or migrate to other concepts entirely.

Onchain analysis

Onchain analysis is a research method based on the study of data from blockchain. It relies on various metrics, such as the number of active addresses, the dynamics of balances on exchanges, and the proportion of short-term and long-term holders. Onchain analysis makes it possible to determine the current market sentiment, find out which sectors and assets are currently interesting, analyze transactions of different wallets and much more.

Since crypto-assets are by nature the most transparent assets, information about transactions, movements of funds and transactions made can be easily found on blockchain observers (e.g. btc.com, Etherscan or BscScan), which can be accessed by anyone.

For more useful information, you can turn to third-party platforms: for example, Glassnode, DefiLlama, IntoTheBlock, Arkham, Hyblock Capital and others. Each of these platforms provides unique metrics from which you can extract a ton of useful information that will be useful to traders and investors alike. You can learn more about what onchain analysis is in this piece. By the way, you will also find information about the platforms mentioned above.

Fundamental analysis

Fundamental analysis is a method of studying all available information about an asset. It is based not on analyzing charts, but on the assessment of economic, financial and other fundamental factors that affect the value of assets.

The trader's main task is to determine the true value of the asset. After reserch, the trader can determine whether the assets are undervalued or overvalued. In the first case - he has a good asset to invest in, in the second case - a reasonable decision will be to get rid of the assets.

How to perform fundamental analysis?

Inorder to conduct a fundamental analysis of an asset from the classical markets it is important to study:

• financial reports of the company: balance sheet, profit and loss statements, cash flow statement - this information will allow to understand what the real financial condition of the company is, how solvent it is;
• share price: in order to determine the true value of a stock, it is important to study the price to earnings per share (P/E) ratio, dividends, capital structure, cash flows, capitalization. All these indicators make it possible to determine whether assets are overvalued or undervalued;
• Macroeconomic indicators: GDP, inflation, unemployment, interest rates all directly affect the value of many assets;
• competitors: studying competitors allows you to understand the strengths and weaknesses of the company. In addition, very often if the share price of the nearest competitors is very divergent, it may indicate that one of the companies is overbought and the other is oversold;
• events and news: any news related to a company can affect its asset prices. It can be corporate announcements, changes in legislation, regulatory decisions and other important events.

In order toconduct a fundamental analysis of a crypto asset it is important to study:

• The purpose of the project and its utility: why it was created and how it will be used, what real problems it will solve;
• Team and developers: extremely important for the development of any startup is the presence of an experienced team of professionals;
• Social networks: how developed the project's social networks are, whether there is support from the community;
• Whitepaper: the main document of any crypto project, which describes its advantages, goals, roadmap and all key factors of development;
• Tokenomics: the economics of the project - how tokens will be distributed, what the ownership stakes are and how the token will be used in the ecosystem;
• Funding and partnerships: without money there will be no movement - this is important to remember, so even the coolest project will not survive long without support;
• Competition: assessing the market and the asset's competitive advantage over other projects;
• Issuance and inflation: whether there is a mechanism to control inflation, what is the cryptocurrency's issuance policy.
• Sentiment is a set of moods, beliefs and expectations of market participants. When traders and investors are optimistic, they tend to buy more, which raises asset prices. If fear and uncertainty prevail, the market can quickly collapse due to massive selling. Speaking of which, you can surf social media, forums and other opinion-sharing platforms to study sentiment, as they play an important role in shaping and spreading market sentiment.
• Overall market sentiment: it is foolish to deny that overall market sentiment directly affects asset prices. If investors are in panic because of bad news or events and the market is moving downwards with only negativity all around, it is unlikely that assets can rise in such market conditions.

Read more about what fundamental analysis is and how to properly perform it on conservative and crypto markets here.

Smart Money Concept

The Smart Money concept is one of the most popular and new concepts for working in the financial markets. Smart Money is a strong tool, which in many ways is superior to others, and certainly gives a number of advantages in the markets, but we should not forget that it is not a pill of success.

Smart Money opens up a new way of looking at the mechanics of the market and the role of participants in it. This approach requires flexibility of thought, a critical eye and a willingness to expand one's horizons to understand and utilize its principles. This concept is constantly evolving and requires each of us to do the same.

Once upon a time, the Smart Money concept was centered around manipulation, big players, market makers and working in orderblocks. You can still find information on the vastness of the internet that the main task of a smart money trader is to follow the steps and clues left by the big player, but in fact since then the concept is much broader than it seems at first glance.

The Smart Money of the current time is about working with liquidity, price formation logic, understanding price delivery algorithms, working correctly in zones of interest, realistic targeting and working effectively with structural patterns.

This concept, more than any other, shows traders how important it is to keep moving, changing approaches and improving skills. Adapting your approach to current and changing market conditions is the main tenet of this concept, and frankly, of a successful trader too.

Scalping

Scalping is literally "scalping" a price movement. Scalpers make profit from a large number of concluded deals in a short period of time. For their work, they usually use junior timeframes. One such deal brings a small income, but if you make a lot - the numbers grow significantly.

Scalping is particularly popular in the crypto market, as it is considered the best for accelerating the deposit... And for its loss.

Some call scalping a strategy, and some call it roulette. Nevertheless, experienced successful scalpers do not earn thanks to intuition, they use special strategies.

A successful scalper must react instantly to price changes in order to make profits. Therefore, three key elements are important in scalping:

• Consistency
• Speed
• Ability to work with charts

Typically, scalpers do not engage in fundamental analysis. Instead, they focus on identifying short-term levels from which price can give a reaction. In addition, scalpers also pay attention to the order stack in order to identify at which price values reversals may occur and which price may seek like a magnet.

How to Choose a Concept for Trading: CRYPTOLOGY.KEY Team's Opinion

Choosing a concept for trading is an important step in becoming a trader, there is a huge amount of information about different strategies and methods of analysis on the Internet. Each of them has its own features and characteristics. It is extremely important to choose a concept that suits you and on the basis of which the trading strategy will be built.

A trading concept is a set of tools for traders and investors that help them make decisions and achieve success in the markets. It defines your way of analyzing the market and trading style, so choosing the right concept is the key to success.

In order to make up your mind, first of all, it is important to study different methods - this will help you understand their basics. Each has its advantages and disadvantages, but the main green flag will be your understanding of the concept. You can memorize and learn all the terms and tools of the concept, but what good is it if you don't know how to combine and use them to make trading effective? The most important thing is the "match" that takes place between the trader and the concept: the trader must fully understand it.