The recent developments on the geopolitical front has been giving rise to tensions worldwide. How do these rising tensions affect the markets, and how would this affect our decision making in the markets when it comes to an attempt of factoring in information of this magnitude.
Over the course of nearly a decade I have dedicated a large part of my professional life as an educator, sharing knowledge and experiences throughout various platforms, be it online or traditional publications. As a trader who has analyzed and traded the cryptocurrency markets extensively over the past three years, varying from swing trading to HFT I now make an effort sharing part of the knowledge and experience I have gained from being exposed to the crypto markets.
When it comes to the subject at hand, a good place to start would be to take a look at the information we have available to us and turn data into information. That we can do by organizing it three subcategories:
Fundamental factors refer to a method of analysis of evaluating the intrinsic value of an asset and analyzing the factors that could influence its price in the future. This form of analysis is based on external events and influences, as well as financial statements ie. earnings reports and industry trends. The goal here is to find out how healthy a company or project is, while also making an educated guess on how the company might perform in the future. This type of analysis is most common in the stock market. With the influx of stock market participants in the cryptocurrency markets this has become more common over the years.
Technical analysis is a discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen in charts. In other words, based on past data and price behavior using a price chart an attempt is being made to make an educated guess of what might happen in the future.
These are traditionally the most commonly used types of analysis. Opinions vary wildly on which type of analysis provides the best results. Some people swear by fundamental analysis, some by technical analysis, while others see benefits in using a combined form of analysis.
However the most important question remains. How is one able to make an informed decision in this never ending stream of information. This is where the third category comes into play.
When different types of analysis generate a mixed and contradictory conclusion it can be classed as noise, and irrelevant information that does more harm than good when it comes to decision making. Mostly this happens when the chart shows a certain trend or pattern, whilst big news is being released. It is at this moment when it is mandatory to classify irrelevant information into this category.
When technicals coincide with fundamentals however, you get the biggest move. If we take into account the rising tensions in Eastern Europe, and apply this to a chart we can see a clear correlation between the behavior of the traditional stock markets and Cryptocurrencies.
We see that Bitcoin follows the lead of the ES minis markets (one of the largest markets in the world) despite Bitcoin being perceived as a fundamentally strong asset. As the world dives into turmoil and tensions rise, we see that the global markets drag the crypto markets with it. Technical levels of less importance are breached without much effort. However when taking a closer look at the charts below we see that on both assets major support zones are being hit, in both cases one of accumulated volume, which results in a great relief rally of double digit percentages, making the fundamentals less relevant at this point.
In conclusion, while the fundamentals were pointing to a decline in global markets, technical analysis gave us a zone where price had the best chance of finding support. As seen in the image this proves that no asset trades up or down in a direct line. Even if news on global scale seemingly affects the markets, ultimately it still runs its course regardless of its external influences.
It is at the intersection of where the fundamentals meet the technicals when big moves are to be expected.
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The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.
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