Despite cryptocurrencies’ usefulness in cross-border transactions, their potential to transform the financial world as we know it and their implications for a future of self-sovereign finance, they have a reputation for being fairly volatile. While this instability in price may put some investors off, volatile prices serve as easy opportunities to benefit from price differences and quickly changing trends. If you’ve recently made the move to trading cryptocurrencies, then you’re probably wondering what the best crypto indicators are.
We collected the best crypto trading indicators, all of which can be worked into a profitable trading strategy.
Contents:
Interact with the underlined words and green dots to get additional details and explanations.
Additional context for the visuals.
Explanations and definitions of terms.
Indicators are technical analysis tools that give traders some insight into potential prices, based on historical prices from a certain period.
Each technical analysis indicator is based on a specific formula that performs calculations by converting a data set into lines, charts and other graphical elements, which are overlaid on or next to price charts to help traders make decisions.
Now, let’s take a look at the three best technical indicators for cryptocurrency trading.
Simple moving average, or SMA, is an indicator that helps identify a trend and shows when it will end. Using this, traders can determine whether an asset’s price will rise or fall. Because moving average indicators are calculated using the most straightforward formula, they are often referred to as regular or simple moving averages. SMA uses the average price of an asset over a selected period.
The simple moving average is calculated by adding up prices in a period and then dividing that figure by the number of time periods. For example, an SMA with a period of 14 will calculate the average closing price from the last 14 candles.
SMA can be calculated for different time periods. The most used periods are 3, 7, 14, 20/21, 50, 100 and 200. One of the most popular periods is the 200-day SMA.
The longer the calculation period, the less sensitive the SMA indicator is to sharp fluctuations. If the SMA is directed upwards, it means that the asset is growing in price, and if it is directed downwards, then the asset price is falling.
The Golden Cross and Death Cross are the most popular SMA trading patterns.
A Golden Cross.
A Dead Cross.
A Golden Cross occurs when the short-term SMA breaks above the long-term SMA. This signals high trading volumes and probable growth in the asset price.
As a rule, the 50-day SMA is used as a short-term average, while the 200-day SMA is used as a long-term average.
A Death Cross is the opposite of a Golden Cross. This happens when the short-term moving average crosses the long-term moving average, going downwards. For example, a 50-day SMA crosses a 200-day SMA from top to bottom. As a rule, the Death Cross is considered a signal indicating a fall in the asset price.
The SMA indicator is used both independently and in combination with other indicators.
The exponential moving average, or EMA, is an indicator that, like SMA, helps determine the reversal point and trend direction of an asset’s price. However, the exponential moving average gives more weight to recent prices, while a simple moving average gives equal weighting to all prices.
Depending on the trading strategy, the moving average is made over a certain number of periods — for example, 10, 20 or maybe 200. As a general rule, short-term investors are more likely to use 8- and 20-day EMAs, while long-term investors are more likely to use longer-term EMAs such as 50 and 200 days.
If the EMA line turns down and the chart candle crosses that downward indicator, this indicates the likely start of a downtrend. The converse is also true: When the chart candle crosses the indicator and the EMA line goes up, then an uptrend is likely to begin.
MACD, or moving average convergence divergence, is an indicator and oscillator that helps determine the direction of a trend, find price reversal points and allows for trading sideways.
The MACD indicator has three key components: the MACD line, the signal line and the histogram. Both lines are trend indicators, and the histogram can be viewed as an oscillator.
The main signal of the MACD indicator is a crossover of the signal line. This is the most frequent signal, and it appears when the MACD line crosses the signal line. If the MACD crosses the signal line from the bottom up, this indicates the beginning of an increase in the asset’s value, for which it is best to open an Up trade. If the MACD line crosses the signal line from top to bottom, this indicates a possible fall in the asset’s value, for which it is best to open a Down trade.
Divergence is when the price on the chart and the MACD histogram move in opposite directions.
If the MACD histogram goes up and the price moves down, this is a signal to trade Up.
If the MACD histogram is falling and the price is moving up, this is a signal to trade Down.
A trend reversal is possible if a divergence has formed between the MACD histogram and the chart.
Divergence on oscillators is a weak trend reversal signal and should not be relied on completely.
To mitigate risk and confirm signals, many crypto traders use the MACD along with other indicators such as the RSI.
The relative strength index, or RSI, is one of the most common technical indicators and is regarded as an oscillator. It shows the speed and amplitude with which an asset’s price movement changes. In simple words, RSI shows how much a cryptocurrency is overbought or oversold. The characteristics of this indicator make it an invaluable tool for trading volatile cryptocurrencies.
The RSI measures the value of an asset over 14 periods. For example, 14 days on daily charts, 14 hours on hourly charts, and so on. The measurement is expressed on the chart as a line that moves in a range from 0 to 100.
There are two standard RSI signals:
If the RSI crosses the 70 level from top to bottom, then the cryptocurrency is considered overbought, which is a signal for a possible drop in its value — trade Down.
If the RSI crosses the 30 level from the bottom up, then the cryptocurrency is considered oversold, which is a signal for a possible increase in value — trade Up.
Trade Down signal.
Trade Up signal.
The relative strength index and the signals from its 30 and 70 levels are suitable for various trading styles. For the best performance, the RSI should be combined with other indicators.
Each trader independently chooses which cryptocurrency analysis tools to use. We recommend testing each of these top price-predicting indicators to identify the ones that work best for you. If you’re ready for the next step, check out our article on scalp trading in crypto and learn more about volatility and how to benefit from it.
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Trade on CryptoRisk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
The overall direction of a market or an asset’s price.
A chart indicator that helps determine overbought or oversold conditions in ranging or non-trending markets.
When an asset is trading at a value higher than it is actually worth. This results in the price inflating, then deflating as sellers take over the market.
When an asset is trading at a value lower than it is actually worth. This results in the price deflating, then inflating as buyers take over the market.