The 4 Useful Technical Indicators For Cryptocurrency Analysis

Before we jump into the topic, I would like to tell you what I think of technical analysis.

Technical analysis is complicated because there are no fixed rules.

There is no magic indicator or holy tools for setting up your trading chart and Every professional trader uses technical analysis in their way.

For Novice traders, it is very confusing to use technical analysis in the correct way and chart can be misinterpreted easily.

Choosing the right time frame based on your strategy is the hardest part when it comes to technical analysis.

So if you are just starting, I highly recommend you focus on choosing the right time frame based on your trading strategy, This is vital in trading because chart pattern changes when you switch your time frames from one to another.

Try to choose long-term time frames rather than short-term time frames, The information we receive from the chart becomes more reliable on higher time frames.

Last but not least don’t mix up the chart with too many indicators, you don’t need many technical indicators to be a successful trader.

These are 4 useful indicators — in no particular order — that you need for trading.

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The Exponential Moving Average (EMA) is a particular type of moving average that gives the most recent data points more weight and relevance.

EMA is similar to Simple Moving Average(SMA), measuring trend direction over a specific time frame.

The calculation of the exponential moving average is beyond the scope of this article.

8-day,21-day,48-day,100-day, and 200-day exponential moving averages are used the most by traders.

If a shorter time frame EMA(8,21,48) crosses above the longer time frame EMA(100,200) it’s a bullish signal.

On the contrary, if an EMA with a shorter time frame(8,21) crosses below an EMA with a longer time frame(48,100,200) from above is a bearish signal.

The exponential moving averages with longer time frames are more accurate than shorter time frames.

As can be seen from the chart, the bearish signal was generated on 2022–08–17 when the yellow line (8-day EMA) crossed below the (21-day EMA).

In this chart, the BTC price is trading below 100-day and 200-day EMA. Regardless of shorter time frames, we can interpret that we are in a bearish cycle of the market.

The time frame you choose for selecting the 2 proper EMA for finding a potential signal, completely depends on your trading strategy and the amount of time you are going to keep that coin. (investment horizon)

2. Relative Strength Index (RSI)

RSI is a technical momentum indicator that measures the magnitude and velocity of price movements. It helps us to spot oversold(undervalued) and oversold(overvalued) conditions in the recent price of a particular coin. by measuring the RSI level we might be able to detect trend reversal and correction points in price.

The relative strength index range lies between 0 and 100. Technically when the RSI number is above 70 it is considered to be in an overbought zone. Conversely, when it is below 30, it’s in the oversold zone.

Here is BTC daily chart with the relative strength index indicator. Please pay attention to the RSI-generated signals. It generated a sell signal (trend reversal or correction) when it crossed above 70 and entered into overbought territory. we can see in the above chart that Bitcoin price dropped by more than 50% from 69000 to around 33000(Red circle on the chart- Please click on the image for full screen). On the other hand, When RSI crosses below 30, it means BTC is oversold and might be a trend reversal point and can be a good buying opportunity. (Shown with a green circle on the chart)

3. Moving Average Convergence Divergence (MACD)

Moving average convergence divergence(MACD) is a technical momentum indicator. The relationship between two exponential moving averages (EMAs) of the price of a security is displayed by the trend-following momentum indicator known as MACD. The 26-period EMA is subtracted from the 12-period EMA to calculate the MACD line.

The MACD line is the output of the calculation. The signal line is a nine-day EMA of the MACD line and can be used as a trigger for buy or sell signals, When the MACD line crosses above the signal line, traders may buy the asset; when it crosses below, they may sell — or short — the security. There are several ways to interpret MACD indicators, but the most popular ones are crosses, divergences, and swift rises and falls.

When the Blue line or MACD(Fast) Line crosses above the Signal(Slow) line from below, it’s a bullish signal. Conversely, when the blue line(MACD) crosses below the red line(MACD Signal) from above is a bearish signal.

4. Volume

Trading volume plays a key role in trading and is usually ignored by beginner traders.

The trading volume is the total amount of trading for that specific coin that occurs in all crypto trading exchanges for a period of time. Volume can be measured on any cryptocurrency during a selected time frame. The higher the trade volume, the better liquidity for that particular coin.

On Balance Volume (OBV), Chaikin Oscillator, and Volume Weighted Average(VWAP) are common useful volume indicators.

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After trying different types of technical indicators, These 4 are among the top indicators in my arsenal.

Thanks for making it this far.

Happy trading!

kiandp

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