Essential Checklist for buying crypto- Part 3

Buying crypto can feel like a gamble if you don’t do your homework, but there’s a way to stack the odds in your favor. You can make smarter and more informed decisions by closely examining technical and on-chain metrics. Here is the second part.

This checklist is a set of questions to consider before buying crypto. It will help cover mistakes people have been making before.

Technical Analysis

You can get the performance of a crypto by checking its charts. Charts offer information about price directions, market beliefs, and anticipated future patterns. Here are some essential aspects to focus on:

1) Is the price showing relative strength?

To know this, you need to compare a token with other popular crypto. A token that shows some resistance to bearish pressure—where the price performs better than others during a bear market—usually has strong potential. Here is an example:

2) Is the price at a key support level?

Support levels are critical areas where buying pressure prevents further price drops. Purchasing near support levels will help reduce the effects of a technical indicator’s signal since supports appeal psychologically to most traders. Avoid tokens moving below critical pillars, which may presage more dips. Here is an example:

3) Is it in an uptrend?

A bullish trend is a situation when a token establishes higher highs and higher lows meaning an uptrend. One can use other indicators, such as the moving average or trendline, to confirm an uptrend.

It is important not to buy a token that has been on a bearish run for some time. You can only do this when there are fundamental reasons to believe the token will turn around. Here is an example: 

4) Is There a Clear Invalidation Point?

One of the best ways to approach the markets and enter a trade is to define your exit strategy in advance. Find a certain level of support or resistance well above or below the high time frame (HTF) that can lead to a sharp reversal of the trend. To avoid making irreversible mistakes, it is very important to understand when to get out of the market and take your losses.

5) Are Volume and Volatility Healthy?

Volume confirms price action. Search for high trading volumes during price hikes, reflecting high activity. Also, make sure to check the level of volatility. Low levels of volatility may imply that a breakout will occur soon, and high levels of volatility may mean that precise timing of entry and exit is crucial.

On-Chain Metrics

On-chain data provides a deeper understanding of a cryptocurrency’s health, adoption, and risk factors.

1) Are There Significant Whale Wallets?

Visit whale trackers or blockchain explorers to study whales’ behavior. Accumulation by whales often indicates confidence in the project, while distribution could signal selling pressure. Here is a good way to find crypto whales:

2) What’s the ratio of whales to retail wallets?

A solid crypto project balances whale control and a solid base of small investors. Too many tokens in the hands of whales can lead to price manipulation. Many holders point to natural growth and steadiness. Here is an example:

3) How Liquid Is the Token?

Liquidity shows how easily you can buy or sell a token without affecting its price too much. When liquidity is low, slippage is high, impacting the aggregate cost of transactions. It’s best to look for tokens you can trade on well-known exchanges with enough trading volume.

4) How Many Unique Wallets Interact Daily?

The number of daily active wallets (DAW) shows how much people use and engage with the token. A high DAW count hints that the token is part of a lively ecosystem. To get a better picture, compare the DAW count to the total number of tokens. This gives you a clear vision of whether the token is in active circulation. Here is an example:

5) Is the Holder Base Growing?

An increase in the number of token holders is evidence of increased usage, credibility, and future viability. In this case, the holder growth improves project utility and stakeholders’ confidence in the market.

6) What’s the Token Distribution Model?

Check out how tokens are handed out—through vesting plans, lock-ups, or instant release. A step-by-step unlocking approach cuts down the chance of market crashes from quick sell-offs. Stay away from projects that aren’t clear about their token distribution.

Conclusion

Buying crypto isn’t about getting lucky—it’s about getting ready and having a plan. To make smart crypto choices, don’t just look at charts. Pick projects that fix real issues, have doxxed teams, and strong partners. Double-check team-ups and ensure the project fits what’s hot in the market, backed by solid basics.

Disclaimer

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted risk tolerance levels of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses you may incur due to any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.