To determine the long- and short-term price direction of a cryptocurrency, crypto traders use various technical indicators. These indicators can be used to predict the direction of the price, the volume, the quality of the price movement and other data. In this article, we explain more about what crypto indicators are, and what different types of indicators are available.
What are crypto indicators?
When you trade-in cryptocurrency, you naturally want to buy a cryptocurrency
at the lowest possible price. Then you want to sell the coin at the highest possible price. This is because this way you will ensure that your profits are as high as possible.
To determine when the perfect time to buy or sell has arrived, you can set up fundamental or technical analysis. In this case, we will mainly talk about the technical analysis, which is mainly based on the figures of the crypto exchange. In technical analysis, crypto indicators are used to determine the price behaviour of a cryptocurrency.
A crypto indicator is a single measurement tool for determining price expectations. De meeste crypto traders gebruiken verschillende crypto indicatoren, om veel zekerder te zijn van de gemaakte voorspelling.
These are the most commonly used indicators that we will talk about in this article:
- Relative Strength Index (RSI)
- Fibonacci Retracements
- Bollinger Bands
- Stochastic Oscillator
- Average Direction Index (ADI)
- On-Balance Volume (OBV)
1. Relative Strength Index (RSI)
The term RSI was coined by J. Welles Wilder in 1978 and is now one of the most well-known indicators in the crypto world. Of course, at the time it was coined for the stock market. However, RSI can also be used perfectly well for the crypto market. It is used to determine the strength and potential reversal points of a current price trend.
The indicator calculates the gains and losses of a coin over a period of time. It is used by both novice and advanced traders because its parameters are easy to adjust. So, you don't necessarily have to be an experienced crypto trader to use RSI.
RSI can help a trader determine whether a market is overvalued or undervalued, thus helping him decide whether to enter specific markets. Of course, RSI can still end up being wrong. It is simply a tool that you could use as a crypto trader.
2. Fibonacci Retracements
Fibonacci Retracements are used to determine resistance and support levels in the financial market and also in the crypto markets. Fibonacci ratios have been applied to stock price analysis, a concept that originated sometime in the 1930s.
It is based on the Fibonacci numerical sequence and helps determine potential levels at which traders can place strategic buy or sell orders. The key resistance levels in the financial markets are often estimated at 38.2%, 50% and 61.8%.
MACD is a moving average convergence and divergence indicator developed by Gerald Appel in 1970. MACD was also developed for the stock market at that time. When crypto became bigger, this market also adopted MACD.
This useful model helps traders create histograms for specific markets, which can show the short-term evolution of the markets in question. This indicator also determines whether a market is overvalued or undervalued. 'Bullish divergence' (when the price is falling) and 'bearish divergence' (when the price continues to rise) are commonly referred to as strong signals in this case.
4. Bollinger Bands
Bollinger Bands are used to calculate the range and degree of price volatility, which is a great advantage since prices on the crypto market fluctuate greatly. Just think about the price of Bitcoin
, which can rise and fall incredibly quickly in a week.
The Bollinger Bands can be used to detect rising or falling price trends, volatility and rapid price movements. The indicator falls between simple and strong signals, which are often called "double bottom" and "double top" signals in the industry.
Most beginning traders use this indicator because it is incredibly easy to use. In addition, this indicator has proven itself many times over. However, there are also plenty of advanced crypto traders who use Bollinger Bands.
5. Stochastic Oscillator
The Stochastic Oscillator is an indicator that represents the momentum of the trend. Explained a little more simply, it tells the crypto trader which direction a trend will take. The Stochastic Oscillator takes an average of two weeks to predict the direction of prices.
The Stochastic Oscillator calculates the difference between the closing price of the crypto and the price range over a given period. The result will be between values ranging from 0 to 100. If the value is greater than 80, the coin is overvalued. When the score is less than 20, it means that it is an undervalued cryptocurrency. You could say it’s fairly similar to the RSI score.
6. Average Direction Index (ADX)
This indicator determines whether a price movement is qualitative. The ADX displays values between 0 and 100. The ADX is a non-directional signal, meaning that it does not determine a specific direction for the future price movement of a cryptocurrency. It is used to indicate the strength of a rising or falling price.
If a trader achieves an ADX score of more than 25, it means there is a low trend going. A score of 25 or less, means just the opposite: there is no trend present. Here's what the ADX score generally means for crypto traders:
- 0-25: no trend
- 25-50: low trend
- 50-75: medium trend
- 75-100: strong trend
7. On-Balance Volume (OBV)
OBV (On-Balance Volume) is used for price forecasts based on changes in trading volume. This cumulative indicator calculates the total sum of positive and negative volumes. The principle of this indicator is that any drastic change in volume will indicate the future price direction of an asset.
If volume increases steadily without a change in price, the OBV indicator will rise and predict that a price increase will occur soon. If OBV decreases, while the price shows no change, it means that the price of the cryptocurrency will decrease in the near future.
Crypto traders can use an awful lot of different technical indicators to determine price fluctuations in the crypto market, so they can determine what position to take to generate optimal returns. Each crypto trader often has their own favourite indicator. So it's best to try out different indicators to determine which one you like working best.
However, it is important to realize that an indicator is not always right. You can use an indicator as a tool, but don't let your choice depend on one indicator. It is always wiser to use multiple indicators and make a choice based on broad research. In this way, you will ensure that the chances of making a profit will increase many times over.
When you trade on Coinmerce
you can use crypto indicators too, For this, you first have to determine yourself with an indicator at what time you would like to get in on the price. You step in by buying the cryptocurrency in question at Coinmerce. Then you can sell it via Coinmerce at the best price moment.