The Most Popular Cryptotrading Indicators
By Coinmatics on Altcoin Academy
Today we decided to talk about the five most popular and frequently used indicators for crypto traders.
We hope that this material will be useful and that you can immediately practice the acquired knowledge in your trade.
Moving average
The MA (moving average) is a widely used indicator in technical analysis that helps mitigate price action by filtering out the “noise” from random short-term price fluctuations. It is a trend indicator based on past prices.
The two main and most popular moving averages are:
- the simple moving average (SMA), which is the simple average of a security over a defined number of time periods;
- the exponential moving average (EMA). It gives greater weight to more recent prices, which means that EMA responds faster to a change of a price’s direction.
The aim of the moving average is to determine the trend direction and the levels of support and resistance.
Moreover, the indicator shows the price direction: if it ascends, the price moves up; if it descends, the price moves down; if it moves horizontally, the market is in flat, or the changes are insignificant.
Bollinger bands
The Bollinger bands are an indicator used for estimation of the market’s volatility and determination of the potential overbought and oversold zones.
The instrument of technical analysis which is defined by a set of lines based on two standard deviations (positive and negative) from a simple moving average (SMA).
The upper and lower bands are often two standard deviations ± from the 20-day SMA but can be changed. Bollinger Bands is not an autonomous trading system.
It is just an indicator aimed at providing traders with information on price volatility.
John Bollinger suggests to use it along with two or three other uncorrelated indicators providing more direct market signals.
He believes that it is highly important to use indicators based on different data types.
Some of his favorite technical methods are moving average divergence/convergence (MACD), on-balance volume, and relative strength index (RSI).
MACD
The MACD is a lagging indicator used for monitoring trends. It consists of two EMAs and a histogram. The default levels for the indicator are 12, 26, 9.
The MACD is calculated by subtracting the 26-period EMA from the 12-period EMA. The result of the calculation is the MACD line. A nine-day EMA of the MACD called the “signal line” is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals.
The popularity of the indicator can be explained by its ability to define short-term growing impulse.
When the MACD’s lines move away from each other, it means that the impulse is increasing, and the trend is growing stronger. When the lines concur, it shows that the price loses its strength.
As an algorithm for forecasting, MACD can generate false signals.
A false positive, for example, would be a bullish crossover followed by a sudden decline in a stock. A false negative would be a situation where there is a bearish crossover, yet the stock accelerated suddenly upwards.
RSI
The RSI is a technical indicator used for the analysis of financial markets. It is intended for the assessment of a relative price of assets, indexes, or cryptocurrencies on the basis of their recent price history.
Among all technical indicators, the RSI is one of the most common due to its relatively simple signals.
A buy signal is when the indicator is below 30, and a sell signal is when the RSI is above 70. Some traders use more extreme RSI levels: 20 for a purchase and 80 for selling to play safe with volatile assets.
Although the RSI is a powerful instrument, it is more reliable in the markets with no trend price movements.
The RSI also helps traders to identify discrepancies when an RSI indicator doesn’t correspond to the asset movements.
A bull, positive, divergence arises when an asset reaches a new price minimum while the RSI indicator doesn’t.
The majority of traders perceive it as a buy signal because the momentum slows down, and the price will most likely increase.
ADX
The average directional index (ADX) is a technical indicator used to determine the strength of a trend.
The ADX is considered to be a “non-directional” index.
It is designed as three separate lines swinging in the range from 0 to 100 in a separate window, which is common for oscillators.
The ADX can be from 0 to 100. 25 points or more mark a threshold that is considered to be a market’s trend. When an indication is in the range from 25 to 50 points, it signals a trend market; the level between 50 and 75 stands for a powerful tendency of the market; and the range between 75 and 100 signals an extremely powerful trend.
The ADX can be used on any chart. The wider the chart is, the more deals it has, and the more accurate they are. However, this level of accuracy entails some delay in entering a deal.
