With fast-paced developments in the technology field, investing and trading with financial assets have become more widely accepted, which popularized these activities among both youth and old. Online brokers and exchanges are everywhere these days and anyone can join financial markets and trade in order to try and generate profits.
Among these financial markets, the cryptocurrency market has emerged as one of the more popular and mainstream places to visit. But most people who join the crypto market with the hopes of making quick profits usually leave it disappointed as instead of the profits they hoped for, they suffer big losses and leave. This is because most people hear how someone got rich with crypto and they just join the market unprepared hoping to recreate the same success. But trading with cryptocurrencies requires a lot of preparation and it is important to have a trading plan when starting out. One of the most important parts of this plan is which indicators you are going to use, and this is why today we will be taking a look at some of the best and most popular trading indicators for cryptocurrencies.
What are indicators in crypto trading?
Before we dive into which indicators are the best, let’s first take a look at what indicators are in general. Technical indicators are programs that can be used when looking at financial trading charts. The program calculates a certain metric that is then displayed to give you an idea of certain market conditions. What this means is that everything that you can calculate from the information provided to you by the chart, can be calculated and displayed by these indicators, removing the need for you to do many complex calculations. Since there is no guaranteed formula for success, each trader will need different indicators for their trading activities. Because of this, stating that one indicator is better than the other is not correct, as every indicator can be very useful in the right hands.
Best Indicators for trading cryptocurrencies
As we mentioned before, it will not be correct to state that one indicator is better than the other, but there are still some indicators that stand out from the rest. These are indicators that can be used more widely and are not only limited to a few trading strategies, which will be useful to anyone to some degree. These indicators are the following:
Moving averages are one of the most commonly used indicators and almost every successful crypto trader will have moving averages integrated into their trading strategy. This is an indicator that removes the abundance of numbers by filtering the price and displaying the average price of the token over a specific period. There are different variations of moving averages, with the likes of simple, weighted, and exponential moving averages all having their own characteristics. This is a trend-following indicator that can be used to identify ongoing and upcoming trends.
Relevant Strength Index
Relative Strength Index, or RSI for short, is a momentum-based indicator that is used to determine if a cryptocurrency is overbought or oversold. When using the RSI indicator, traders will be given a graph in the range of 0 to 100 and the RSI indicator moves between these lines. Depending on where an indicator is at the moment, traders can easily determine if a cryptocurrency is oversold or overbought. If an asset’s RSI indicator goes over the 70 mark it is a signal that the asset is overbought and there is a possibility that prices will start to fall soon. If RSI falls below 30 it means that the token is oversold and people should expect prices to go up. But of course, there is a possibility that what the RSI indicates will not cause any change to the price so no one should believe it blindly.
Moving Average Convergence Divergence (MACD) is a trend-following indicator that uses a combination of two moving averages to spot good buying and selling opportunities for any cryptocurrency. When using MACD, two moving averages are subtracted, and in most cases, these are 26 and 12-period moving averages. After this, the MACD line is placed on top of the chart alongside the signal line which is the 9-period moving average. When the MACD line goes over the signal line it signals that people should buy this token, while when it falls below the signal line, people should expect the price to fall. MACD is also supported by a visual histogram that makes it easier to spot bullish and bearish runs. All in all, this is one of the best indicators to use in your trading strategy and plan.
Another great indicator that will be useful to every crypto trader is the Bollinger Bands indicator. It is one of the most popular and trusted indicators among crypto traders and it uses standard deviation to predict price trends. When placed over the chart, Bollinger Bands are displayed as two lines, one being a moving average and the other being a standard deviation band. When looking at this indicator, the moving average line indicates trends while the standard deviation band shows the volatility of this trend. With this, traders can easily determine the risk associated with each asset and know how much they will be risking with each trade.
The OBV or “On Balance Volume” indicator is used by millions of traders across different crypto markets. Since cryptocurrencies are speculative assets and their price greatly depends on the people’s belief in them and how much they are traded, OBV can be a useful tool to determine upcoming price movements. The OBV indicator shows traders how much each asset is traded with and this information can then be used to further analyze the market and make correct decisions. Another benefit of using OBV is the fact that traders can also spot who is trading with the assets. For example, if trading volume goes up but the price remains the same, it usually means that institutional traders are more active than regular traders. This is an indicator that can be used by both experienced and inexperienced traders and the benefits brought by it are something that no one should miss out on.
Cryptocurrencies are speculative assets and because of this, they tend to be extremely volatile. But this volatility can be predicted if traders utilize different indicators and make them part of their trading strategy. Because of this, every trader should know about the best crypto indicators, what these indicators do, when they are best used, what the best combination of indicators might be, and what strategies work best with which indicators.
In this list, we have presented some of the most popular indicators among crypto traders, but as we mentioned before, there is no best indicator for crypto trading. Every indicator displays certain information about the state of the market and this information can be used in various ways. Because of this, some indicators might be good for some traders as they know how to act on this information, while for some these indicators might not be as useful and will just complicate the already complicated activity of trading. Every trader should go to demo trading and test out different indicators and strategies to see what works before jumping into a real trading environment.