A recent report by cryptocurrency content firm Adaptive Analysis has indicated that trend investing, rather than fundamentals trading, is more successful in cryptocurrency markets. The report argues that the cryptocurrency marketplace is too young for fundamentals to provide trading insight.
Unlike equities and bond markets, the cryptocurrency market is just a decade old. Traditional trade spaces have blossomed for more than a century, and they have technical analysis which can provide insight for traders. However, the younger cryptocurrency market many not need these benefits. In fact, the Adaptive Analysis report argues that technical analysis may not be very helpful at all.
The analysis indicates that simply following trend patterns set over the short term in the Bitcoin market would have outperformed technical trades. It outlines a number of scenarios which would provide far-enhanced returns for investors which would contradict customary technical analysis advice.
Additionally, the report makes clear that most price movements in cryptocurrency are merely speculative, rather than utilitarian, making trend trades far more lucrative. Until the market matures, trading based on technical evaluations will be challenging.
“In the absence of generally accepted valuation models, more and more of the price movements we observe are due to speculation and trend as opposed to actual utility…As the market matures, we will likely see a gradual shift towards valuations based on these metrics until we arrive at a point where we have models that quantify exactly how they play into price.”
Catch a falling knife?
Nevertheless, traders should consider technical analysis as a helpful component of market timing. The difficulty with trend-chasing is that it forces the hand of the investor. That and it does so often when markets have already posted dramatic gains or losses.
This sort of trading cannot predict market movements but rather seeks to take a percentage of gains or losses. While the report does indicate outperformance of past trading schemes, the future is anyone’s guess. Moreover, the report offers trading tactics that are derived from previous market activity. The examples given are done in hindsight, and as they say, hindsight is always 20/20.
Think technical analysis is still the best option for cryptocurrency traders? Or, should they switch to a more trend-based trading model? Let us know in the comments below!
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