Cryptocurrency trading can blow hot or cold, requiring traders to use the best cryptocurrency indicators available to filter the best buy or sell signals.
Indeed, there is money to be made. Similarly, the volatile nature of available tradable digital assets means people can sometimes lose money.
All this depends on strategy and how best a trader, regardless of experience, employs different tools like crypto technical indicators to advise their respective decisions.
On one end, there are early adopters. These are early users who often have tons of coins at their disposal. However, they are best known for HODLing as a strategy. They rarely move their coins, preferring to stay put and enjoy market gains.
On the other, there are traders and speculators. Considering how the cryptocurrency market has evolved over the last few years, these individuals often use numerous strategies to improve their bases, which is nothing but make money.
Technical Analysis in Cryptocurrency Trading
As they refine, traders often use special tools to, amid the noise, pick out deals. Depending on the risk profile of the trader and their preferred deal identification methods, some would prefer to use technical indicators.
Better still, they can opt to track news and base their positions on project-specific reels, just like in the stock market. This approach is called fundamental analysis. Yet, there are traders who blend both strategies for a well-rounded view.
Still, how to best ace the crypto market depends on a sound understanding of technical indicators. These are indispensable for chartists and in the technical analysis where signals are primarily from price action and candlestick arrangements.
Cryptocurrency exchanges usually roll-out their applications, baked-in with popular cryptocurrency technical indicators to help their traders make informed decisions when trading.
Approached mathematically, a trader will notice that a typical chart comprises of several variables. The most visible of them all is the price. Others are trade volumes, contract sizes (lots), range, and so on.
What are Technical Indicators?
All of them interact in one way or another affecting prices. Ideally, assuming perfection, a technical chart—it doesn’t matter the time frame, of any digital asset available in the market should be representative of all conditions, news, and sentiments that influence the price of all assets.
Therefore, tracking all these factors that influence the price at any given time is hard since there are simply too many of them. Accordingly, it necessitates the use of tools to help a trader monitor their preferred variables. This is where technical indicators come into play.
Essentially, technical indicators are a graphical representation of a formula or function crafted depending on the needs of the creator. It is virtually impossible, even if there was a magical way, of fitting all variables and variables in one indicator and displaying them on one chart.
For this precise reason, it explains why there are many cryptocurrency technical indicators that traders can integrate as part of their strategy.
They are Free, but Don’t Use Them All
As an unwritten rule, a trader shouldn’t try to fit all indicators in a chart. Often, most tend to use the same data set, causing duplication and would clutter the chart as conflicting signals can confuse the trader.
To tackle this and to create congruence, it is advisable for a trader to only use the best cryptocurrency technical indicator.
With the best, it means a crypto technical indicator that he bests understand from among the many analogs. Also, using one or two indicators should filter out conflicting signals while integrating the maximum number of important variables.
The evolving and fast-paced nature of the cryptocurrency market means inventors have been forced back to the table to create some of the best cryptocurrency technical indicators that are easy-to-use, comprehensive in the number of integrated variables, and comprehensible even for a beginner.
Best Cryptocurrency Indicators Used by Traders:
1. Bitcoin Strength Indicator (BSI)
Publicly traded digital assets run on transparent blockchains. All of Bitcoin’s moving parts, therefore, are visible. This enables data aggregation and analysis to determine the general health of the network.
Variables like the number of active addresses, exchange inflow/outflow, balances in profits, hash rate, Net Unrealized Profit/Loss (NUPL), and many others can be extracted. All this is because each action transacted on-chain leaves a trail behind.
The BSI combines Bitcoin’s on-chain metrics with technical analysis. The creator, Ivan on Tech, is subsequently launching one of the best cryptocurrency indicators for trading. It collates all multiple data points in one location. Traders using the BSI are always a step ahead, a best-taking advantage of volatility for their profitability.
The BSI Indicator allows traders to get three main types of market insight. Firstly, it reveals “On-Chain Sentiment”, which can help investors track market sentiment and spot possible shifts. Secondly, the BSI Indicator’s Short-Term Trend helps traders discern current prevailing trends. Lastly, the BSI Cloud is useful in gauging the long-term strength of the underlying market momentum.
Over and beyond this superb technical crypto indicator, Ivan, the creator, is a veteran in crypto and blockchain. He’s a prolific Sweden-based YouTuber with a computer science background, an educator, and has been involved in crypto for over six years.
He’s the force behind the Ivan on Tech Academy where over 20k people have taken his online courses. With a technical background, he knows the ins and outs of Bitcoin and blockchain, has garnered a huge following not only on YouTube but also on Twitter.
2. Relative Strength Index (RSI)
Earlier, we said indicators are a graphical representation of formulas and functions that helps the trader predicts future Bitcoin and crypto-asset prices. The RSI is one of the most popular cryptocurrency technical indicators.
As the name insinuates, the tool measures the “strength” of dynamics and the trend of the price of a digital asset. Accordingly, it helps to determine overbought and oversold conditions. The RSI oscillates between 0 and 100. The mid-line, 50, separates between bearish and bullish conditions.
If the signal bottoms up and moves above 50, the uptrend is firm. Conversely, if the RSI number falls below 50, the trend is bearish. However, once the RSI number is above 70, the digital asset may be overbought and considered bearish. The same will happen if the RSI index number is below 30, the digital asset can be said to be oversold and therefore bullish.
2. Fibonacci Retracement and Extension Tools
In the crypto markets, trading based solely on emotions is always never a good idea. The RSI, as mentioned above will help gauge the strength and the direction of the trend.
However, when markets are reversing but the prevailing trend is solid, a trader can use the Fibonacci retracement tool. It comes in handy during market discovery, without necessarily comparing with historical levels.
Based on natural numbers, it can be used to predict the extent of a digital asset correction from spot rates. This helps in identifying potential support and resistance levels before trend continuation.
Traders can also use the Fibonacci extension tool to project possible take profit and resistance levels. This is applicable in case when prices break out after moving horizontally for an extended period.
4. Bollinger Bands (BB)
The BB is an invention of John Bollinger, a veteran trader. It is useful in measuring volatility and determining trends.
The BB helps its user determine whether prices are moving within their typical range or there is a shift.
All this is from checking the expansion and contracts of the lower and upper bands. The middle band is the median 20-period moving average. In a volatile market, bands will expand as the lower and upper bands diverge.
Conversely, in a period of low market volatility, the two will contract, forming a squeeze. If prices close above (below) the upper (lower) band, the asset is overbought (oversold). This presents a chance to sell (buy).
The indicator is useful in predicting long-term price movements.
The OBV is a cumulative indicator that uses volume flow to predict the strength of the underlying trend and possible price movements.
If the price of a digital asset increases, the OBV value will rise hinting at more buyers.
On the other side, if prices decrease, the OBV value decreases suggesting a possible decrease in the digital asset’s price.
Cryptocurrency trading is not gambling.
The problem is, it can end badly for traders who fail to use the correct tools and approaches. Traders who use the best technical indicators to generate entry and exit signals, place stop losses, and take profits can make money.
The difference between riding on waves and regretting missed opportunities will ultimately depend on the deployment of quality and some of the best cryptocurrency indicators.
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