Top 5 Technical Indicators for Trading Cryptocurrencies

There are top five technical indicators for profitable cryptocurrency trading. People use technical indicators when trading to be able to understand the behavior of the stocks and cryptos.

The use of technical indicators can be very confusing and daunting for beginner traders. Fundamental of all the indicators requires understanding and it is a must to help you make profits in the market.

Basic candlestick data were used by these top 5 indicators and all traders take their information from basic price action, the open, high, low, and close data.

Below are the lists of indicators you can use when trading stocks, forex and cryptocurrencies.

  1. RSI (Relative Strength Index)

The Relative Strength Index compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of instrument like crytocoins.

Traders will often use the RSI either coming back out to its overbought or oversold areas as a signal or partial signal to enter a trade. As we can see the RSI is often accurate when indicating when a market will reverse.

charts for trading cryptocurrency

charts for trading cryptocurrency

A trader using RSI should be aware that large rallies and drops in the price of an instrument will affect the RSI by potentially creating false buy or sell signals

  1. MACD (Moving Average Convergence Divergence)

The Moving Average Convergence Divergence is one of the most well-known and used indicators in technical analysis. This indicator is made up of two exponential moving averages which help measure momentum and an instrument like cryptocurrency. The moving averages and the changing distances between them become the MACD.

Convergence simply means the moving averages are moving close together and divergence simply means they’re moving away from one another. When the shorter term moving average is above the longer term moving average a certain area of the indicator will show activity. When the shorter term moving average is below the longer term moving average particular area of the indicator will show activity.

Traders use MACD and signal line crosses such as these to indicate momentum trades.

  1. Bollinger Bands

A Bollinger Band starts off a simple moving average it then has two standard deviations plotted away from it. The important part is because standard deviation is a measure of volatility. Bollinger Bands adjust themselves to current market conditions.

When the markets become more volatile the bands widen move further away from the average and during less volatile periods the band’s contract moving closer to the average.

The tightening of the Bands is often used by technical traders as a nearly indication that volatility is about to rapidly increase. As volatility often follows periods of lack of volatility the market. Most of the time within the bands and when the price action reaches the edge of the Bands is often more likely to reverse and come back into the range.

cryptocurrency bollinger band

cryptocurrency bollinger band

Bollinger band is used as a signal by reversal traders to take a trade. This is pretty close to the oversold and overbought conditions of the RSI.

  1. Super Trend Indicator

The super trend indicator is an excellent indicator of trend direction. It can be used as a foundation of a trading system that is based on trend. Following one of the most popular ways to use this indicator is to enter the market after a pullback.

For example, if the market is on a downtrend indicated by red wait for a green pullback and then we enter the market once it turns red again. The same can apply in up trending markets.

  1. Confluence

Confluence is the last indicator in the list. It isn’t a new one it’s indicated confluence which means to use multiple indicators and their signals to take a trade here we have the RSI and MACD.

With the RSI moving into overbought territory, remember that it indicates that the market will reverse. However, we want to help us filter out false signals on the RSI, then we also look at the MACD to give us confluence.

We can see if an instrument is indicating the momentum has come out of the market as far as the market rallying or going up is concerned. Then we combined MACD cross here a signal to enter this short trade could be waiting for our sights to come back out of the overbought.

There are hundreds of indicators a trader can choose from. But the top five we discussed was the best ones to developed trading strategies from. Always take note how the indicators work with certain mark conditions and see if you can see patterns in the market.

Overloading your screen with indicators is never a good practice to start with. It will bring confusion instead of profit.

Remember that indicators shows an indication of something happening in the market. They aren’t crystal ball trying to predict the future. Never blame the indicator when your trades doesn’t work out well. No matter which indicators you use, you will still need to take loses in trading.

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