If you are an investor, you must know the concept of indicator to be effective in Crypto technical analysis because this indicator system is one of the important tools. Helps traders determine effective entry and exit points. In the article below, Crypto Trading will introduce you to the role, types, and how to apply Crypto indicators. Don’t hesitate to refer to it now to better understand the type of indicator.
What is the indicator in Crypto trading
indicator is an important tool in trading used to find effective market trends. At the same time, it is also used to determine important support and resistance zones and the strengths and weaknesses of the trend. From here, it helps traders determine reasonable entry points and optimize profit closing.
Indicators can consist of a number of components such as a straight line, or a curve that follows the price. This type of Crypto technical analysis is formed based on past data from which its value is formed.
Crypto Technical Analysis Role with indicator
For indicator Crypto technical analysis plays an important role in cryptocurrency trading. At the same time, use these indicators to evaluate trends, predict price movements, and make trading decisions. Below are some roles you can refer to:
Trend identification: The indicator helps identify the trend of increasing, decreasing, or sideways coin prices based on past price movements. Popular trend indicators include the moving average, MACD…
Measure momentum: The indicator reflects the speed and strength of the trend. Helps predict the possibility of trend continuation or reversal. Momentum indicators often use relative strength RSI, Bollinger Bands, Stochastic,…
Identify buy/sell points: Provide signals for potential points to buy or sell. Oscillators such as RSI, and Stochastics… when in overbought/oversold areas can generate potential buy/sell signals.
Risk level assessment: indicator helps determine support and resistance levels to assess the risk level.
Types of indicators in technical analysis of coin trade
In the process of technical analysis of coin trading Crypto Trading, the following types of indicators are often used.
The indicator follows the trend
An indicator indicator following the trend is a technical indicator used to determine the direction of price fluctuations. Based on this indicator, investors can find out the trend and average price level. From there, investors can come up with new strategies to optimize profits.
There are currently several types of indicators indicator following the trend:
- MA trend indicator
MA is a basic indicator and is widely used by investors in Crypto technical analysis. This indicator is often used by investors to determine whether the trend signal will increase, decrease or move sideways. In addition, the MA indicator will also let investors know the support and resistance levels when the market is trending.
Currently, the MA line will be divided into 3 main lines:
SMA: Simple moving average
EMA: Often referred to as an exponential moving average
WMA: This is a weighted moving average.
Periods of 20, 50, 100, and 200 are most commonly used by investors when using the MA indicator.
- ADX indicator
ADX helps investors measure the strength or weakness of a trend. Therefore, ADX is also considered a fairly comprehensive indicator. At the same time, it is calculated based on the average price fluctuation over a certain period of time.
ADX will include 3 main components:
ADX: fluctuates from 0 to 100 and is responsible for determining the strength of a trend.
+DI, –DI: This component helps to find the trend of the market.
Applying indicators in measuring market inertia
Applying indicators in measuring market inertia is a tool to help traders understand market changes. From there, there is a basis to make the right investment choices.
Below are some indicators that measure market inertia:
- MACD indicator
MACD stands for Moving Average Convergence Divergence. It means moving average convergence divergence. This is one of the few indicators that can describe its value through its name. Accordingly, MACD will provide investors with a number of signals such as: Indicating convergence divergence points, market price momentum, and determining price trends.
- RSI indicator
RSI is a relative strength index with RSI acting as a measure of price change. This indicator will usually fluctuate between 0 – 100. A value above 50 on the RSI will signal that momentum is trending up. If the RSI is 70 or higher, it is an overbought condition. Conversely, when the RSI is below 50 for this market trend, it is usually on a sharp decline. When the RSI is below 30, it is an oversold condition.
Crypto Indicators in Determining Support and Resistance Zones
Indicators play an important role in identifying support and resistance zones in the cryptocurrency market. These are price levels at which there is a high probability that the price will reverse or pause the current trend.
Use indicators to determine support resistance zones using the following indicators:
- indicator trend: MA is the average price of a coin over a certain period of time (eg 20, 50, 100 days). MA200 is often considered an important support/resistance level.
- MACD: MACD is an oscillator that shows the difference between two MA lines. The signal line crossing the MACD line creates a potential buy signal and vice versa.
- Ichimoku Kinko Hyo: Ichimoku Kinko Hyo is a more complex indicator, consisting of multiple trend lines and Kumo clouds. Kumo clouds can act as dynamic support resistance zones.
- Relative Strength Index (RSI): RSI measures the speed and magnitude of price changes. When the RSI is in the overbought zone above 70 or the oversold zone below 30, a price reversal may occur.
- Bollinger Bands: Bollinger Bands are two standard deviation lines drawn parallel to the MA. Prices usually fluctuate within the Bollinger Bands. When the price touches the upper or lower edge of the Bollinger Bands, a reversal may occur.
- Stochastic: Stochastic is an oscillator that compares the current closing price with the high and low prices over a given period of time. The overbought and oversold zones of Stochastic are similar to RSI.
Basic indicator User Guide
To use the basic indicator, investors can use it in the following ways.
How to use MA line in technical analysis of coin trading
The moving average is one of the most popular indicators used in technical analysis. Here is how to use MA in Crypto technical analysis:
Use MA in indicator to determine the trend:
- Uptrend: When the coin price is above the MA the trend is considered up.
- Downtrend: When the coin price is below the MA the trend is signaled to be down.
- Sideways trend: When the coin price fluctuates around the MA the trend is considered sideways.
Using MA in indicator to determine buying and selling points:
- Buy: When the coin price cuts the MA from below, it may create a potential buy signal.
- Sell: When the coin price cuts down the MA from above, this will create a potential sell signal.
- MA Crossover: When two MA lines cross each other (for example: MA 20 crosses MA 50) it is likely to be seen as a trend reversal signal.
Popular MA Trading Strategy indicator :
- Dual MA Strategy: Use two MA lines with different periods to determine trends and buying and selling points.
- MA crossover strategy: Buy when short-term MA crosses up long-term MA and sell when short-term MA crosses down long-term MA.
- MA bounce strategy: Buy when the coin price touches MA and bounces back, or sell when the coin price touches MA and continues to go down.
How to calculate Bollinger Bands when analyzing Crypto technical
Bollinger Bands is a commonly used indicator technical technique in price analysis.
The formula is as follows:
- Moving Average: MA = (Closing Price 1 + Closing Price 2 + … + Closing Price 20) / 20
- Standard deviation is calculated:
SD = √((Closing price 1 – MA)^2 + (Closing price 2 – MA)^2 + … + (Closing price 20 – MA)^2) / 20)
- Upper band: Upper band = MA + (2 * SD)
- Lower Band: Lower Band = MA – (2 * SD)
How to use Bollinger Bands when indicator technique as follows:
Use Bollinger Bands when indicator to determine the trend:
- Narrow Market Volatility: When the price shrinks within the Bollinger Bands it can indicate a lack of volatility. A breakout or reversal is likely imminent.
- Volatile Market: When price moves away from Bollinger Bands it can indicate high volatility and strong trend.
Use Bollinger Bands when indicator to determine buying and selling points:
- Buy: When the price touches and bounces from the lower band it signals a potential buy point in an uptrend. When the price line crosses the Bollinger band it shows confirmation of an uptrend.
- Sell: When the price touches and bounces down from the upper band it indicates a potential sell point in a downtrend. When the price line cuts down the Bollinger band it signals a downtrend.
Using Bollinger lines as support and resistance levels:
- The upper band can act as resistance when the price is rising.
- The lower band can act as support when the price falls.
Method of applying indicator RSI in Crypto technical analysis
Investors can apply the RSI indicator in Crypto technical analysis to achieve efficiency in trading. The Relative Strength Index (RSI) is a popular oscillator used in technical analysis. It is used to measure the speed and magnitude of price changes of an asset. The RSI will usually fluctuate between 0 and 100 with:
- An RSI value above 70: May indicate overbought conditions. The market price may have increased too much and is likely to correct downwards.
- An RSI value below 30: May indicate oversold conditions. Price may have fallen too far and is likely to recover.
- Bullish Divergence: When you see the price making a lower low and RSI making a higher low. This may indicate a possible uptrend reversal.
- Bearish Divergence: When the price makes a higher high the RSI makes a lower high. This indicates a possible reversal of the downtrend.
Applying Fibonacci to Crypto Technical Analysis
The Fibonacci ratio is a sequence of natural numbers whose ratio between consecutive numbers is approximately 0.618 and 1.618. The Fibonacci ratio is widely applied in many fields including Crypto technical analysis.
How to apply Fibonacci ratios in indicators as follows:
Using Fibonacci in indicator to determine support and resistance levels:
- Fibonacci retracement: Used to identify potential support and resistance levels after a strong price move. Common retracement levels include 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%.
- Fibonacci extension: Used to identify potential price targets after the price has broken a support or resistance level. Popular extension levels include 1.618%, 2.618%, 3.618%, and 4.236%.
- Fibonacci fan: Identify potential support and resistance areas based on trend lines drawn from key highs and lows.
Using Fibonacci in indicator to identify potential buying and selling points:
- Buy: When the price touches and bounces from a Fibonacci support level it signals a potential buy point. When the price line cuts above the Fibonacci line it confirms an uptrend.
- Sell: When the price touches and bounces off a Fibonacci resistance level, it indicates a potential sell point. When the price line cuts down the Fibonacci line, investors can easily confirm the downtrend.
See also: Technical analysis: secret trade to increase profits
How to apply Ichimoku in Technical Analysis of Coin Trading
Ichimoku is a complex indicator used in technical analysis. It is used to identify trends, support and resistance, and potential buying and selling points.
Applying Ichimoku in indicator determines the trend:
- Uptrend: When the price is above Kumo and Tenkan Sen is above Kijun Sen.
- Downtrend: When the price is below Kumo and Tenkan Sen is below Kijun Sen.
- Sideways Trend: When price fluctuates around Kumo and Tenkan Sen is close to Kijun Sen.
Apply Ichimoku in indicator to determine support and resistance:
- Kumo: Can act as a dynamic support resistance zone.
- Chikou Span: Can act as additional support/resistance line.
- Senkou Span A & B: May act as potential support resistance zones.
Identify potential buy and sell points:
- Buy: When the price crosses the Kumo from below, it indicates a potential buy point. When the Tenkan Sen crosses the Kijun Sen, it shows confirmation of an uptrend. When the Chikou Span crosses the price, it indicates an additional buy signal.
- Sell: When the price cuts down on Kumo from above, it indicates a potential sell point. When Tenkan Sen cuts down on Kijun Sen, it confirms a downtrend. If Chikou Span cuts down on price, it may indicate an additional sell signal.
Notes when applying indicators in trading
To apply the Indicator proficiently, investors need to note the following.
Should Crypto Indicators Be Used Alone?
Using just one indicator is not enough to make informed trading decisions in the Crypto market. Each indicator will have its own advantages and disadvantages and using just one indicator can lead to errors and losses. In addition, the cryptocurrency market is much more volatile than traditional financial markets. Therefore, the indicator may not react promptly to sudden changes in price. This, in turn, leads to false signals and incorrect trading decisions.
Investors should combine multiple Indicators to help compensate for the limitations of each individual Indicator. At the same time, this combination will give you a more comprehensive picture of the market. In addition, combined with other indicators, you should update market news regularly. Because price fluctuations can be affected by news about cryptocurrency projects and other events.
Apply indicator same trading time frame
Choose the right time frame: The time frame you choose should match your trading style and investment goals. For example, short-term trading should use small time frames of 5 minutes, 15 minutes, or 30 minutes. Long-term trading prefers to use large time frames such as 1 hour, 4 hours, or daily.
The time frame should be compatible with the indicator the trader uses. For example, some indicators are designed to work well in short-term time frames. While other indicators are more suitable for long-term time frames.
Avoid using too many time frames: Using too many time frames can overload you with information and make it difficult to make decisions.
Use the appropriate Indicator: Each Indicator has its own advantages and disadvantages. Therefore, you need to choose the appropriate Indicator for your time frame and trading goals. For example, short-term time frames should combine Bollinger Bands, RSI, and MACD. Long-term time frames should use Ichimoku Kinko Hyo, Moving Averages…
Conclude
The above article by Crypto Trading shows you that indicator is a very useful technical analysis tool. However, each type of indicator will often have different functions and strengths. Therefore, investors need to find the right technical indicator to bring the best efficiency. Hopefully, the above information indicator has answered some of your questions about Crypto technical analysis. Hopefully, you will make the right investment decision and earn a lot of profit. In particular, don’t forget to contact us if you have any questions.
FAQS
Is the indicator 100% accurate?
No. Indicators are tools to assist traders, not accurate forecasting tools. Indicators can give false signals due to many market factors.
Should I use an indicator when trading cryptocurrencies?
indicator can support cryptocurrency trading, but please note:
- The cryptocurrency market is volatile, indicator may not react in time.
- Combine indicators with other analyses such as news, sentiment analysis,…
Should indicators be combined with other technical analysis methods?
indicators a useful tool but need to be used flexibly. At the same time, it needs to be combined with other analysis methods to make informed trading decisions.
