If the world has learned anything in the last decade, it’s that the cryptocurrency market is a risky and highly volatile space. This volatility can be either good or bad, depending on how skilled a trader is.
A few qualities that differentiate skilled traders from the unskilled include
- Knowing when to enter and exit the market.
- Knowing how to fish out trading opportunities and take advantage of them.
- Knowing when to take profits from running trades.
All of the above skills require mastery over an aspect of trading called technical analysis.
What Is Technical Analysis?
A person who practices technical analysis is called a technical analyst. Technical analysts believe that the future price of a cryptocurrency can be predicted by studying its past price action through charts.
Technical analysis is a form of financial analysis that involves considerable skills. These skills include reading charts, as well as a mastery of indicators. With charts and indicators, technical analysts can identify trading opportunities, market trends, and patterns.
On one hand, charts may be powerful tools, but any chart is incomplete without the right indicators.
Three of The Best Indicators
Indicators are mathematical tools that use the data from past price actions to forecast future price movements.
Indicators are used to anticipate trends and the general market direction ahead of time. A crypto trader can use the pointers provided by indicators to make trading decisions and make a considerable profit.
Below are three of the most powerful and easiest-to-understand indicators. We believe all of them are worth looking into.
The MACD
MACD is an acronym for Moving Average Convergence and Divergence. It is one of the most straightforward indicators to use.
The MACD assesses whether the short-term price momentum corresponds with the long-term price momentum.
The MACD is calculated by subtracting the 26-period exponential moving average from the 12-period exponential moving average. The result of this subtraction is a single line, known as the MACD line.
The 9-period exponential moving average appears alongside the MACD line.
This line is known as the ‘signal line.’ It is used with the MACD line by traders to determine whether to buy or sell. Traders buy when the MACD line goes above the signal line and sell when the MACD line goes below.
This strategy is straightforward. And yet it can fetch you considerable returns.
The RSI
RSI is an acronym for the Relative Strength Index. Like the MACD, the RSI is a momentum indicator determining whether a coin is ‘overbought’ or ‘oversold.’
The RSI is a relatively simple indicator. It consists of a grid labeled on the vertical axis from 0 to 100. Inside the grid, there is a line called the RSI line.
When the RSI line goes above the 70/80 mark, the cryptocurrency is said to be oversold, and traders should consider selling.
When the RSI line goes below the 30/20 mark, the cryptocurrency is said to be overbought, and traders should consider buying.
The market is at equilibrium when the RSI line is at or close to the 50 mark.
Bollinger Bands
Bollinger Bands are one of the most popular and simplest technical indicators. They were created in 1980 by a financial analyst called John Bollinger.
Bollinger Bands are price envelopes. They measure market volatility by calculating the standard deviation on either side of a crypto’s moving average. They consist of an upper band, a lower band, and a moving average in the middle.
Bollinger bands are used to show the difference between the market’s high and low extremes.
- When the higher and lower lines of the Bollinger bands begin to contract, this indicates low volatility and that sharp price movement is likely to happen in either direction
- When the bands start to expand, the trend might end. This is a sign to take profits and watch what happens next.
- Prices tend to bounce between the upper and lower bands of the indicator.
- When a breakout to the upside or downside occurs, a strong trend can be expected.
