The Smart Way to Combine Indicators for Crypto Trading | And More in This Weeks Crypto Update.
- Here is Why LUNA Uptrend Can Slowdown
- The Case for Cardano to Drop to 50 cents Before Bottoming
- The Smart Way to Combine Indicators for Crypto Trading
Here is Why LUNA Uptrend Can Slowdown
Terra (LUNA) has one of the most substantial uptrends among the top 10 cryptocurrencies. However, in the short-term the cryptocurrency has been pulling back from its all-time high of $119.51 and it’s trading back below the $100 big psychological level.
Altcoin Index Comparison
By comparison, the altcoin index, which tracks the performance of the top 10 altcoins, has been moving steadily lower. However, LUNA brushed off the bearish momentum in the crypto market and traded higher.
In the short term, we can see that LUNA price is starting to track the overall market performance and is moving lower in tandem with the ALTcoin index. This can be an early signal of a potential slowdown of LUNA the uptrend.
Technically speaking, we’re still in a strong uptrend as LUNA price is trading well above the critical 200-day moving average. But with the momentum shifting to the downside, there is a high probability of a retest of the 200-MA.
The bullish momentum seen on the RSI oscillator is starting to fade away. The break below the 50 mid-level signals more bearishness.
Looking forward, LUNA price can be trapped in a big ranging zone between the $100 high psychological level and the $50 significant round number and critical support level.
The Case for Cardano to Drop to 50 cents Before Bottoming
Cardano (ADA) has the potential to resume lower and fall as low as $0.5. A major reason for this bearish scenario is ADA’s descending channel which the bears may try to tag again. This will be a classic break and retest price structure.
A descending channel pattern has formed on ADA’s daily chart, starting with the price falling from its all-time high of $3.09. The breakout to the upside has lost momentum, and now we have 3 bearish factors that align to call for more downside:
- First, the bears reclaimed the $1.00 psychological number after an initial failed rally.
- Second, the RSI readings also point lower as the oscillator is back below the 50 mid-level signaling bearish momentum.
- Lastly, ADA’s price is trading well below its 200-day simple moving average, which signals that we’re in a bearish market.
Looking forward: The next major support to the downside comes near the current low of the year of $0.74. A daily break and close below this level will open up the door for ADA’s price to test $0.50 and, subsequently, the upper slopping trendline of the descending channel.
The Smart Way to Combine Indicators for Crypto Trading
Combining technical indicators in a meaningful way can help cryptocurrency traders be more accurate in trading. However, with so many technical indicators at your disposal, it can be intimidating and challenging to use them properly.
Types of Technical Indicators
In technical analysis, indicators can be grouped into three main categories:
- Trend following indicators like moving averages, Parabolic SAR, MESA, etc.
- Momentum indicators like the RSI, stochastic, etc.
- Volume indicators like OBV, money flow index, etc.
A helpful rule of thumb is only to combine technical indicators that provide us with different signals about the market. But unfortunately, even season traders make a common mistake in using indicators that broadly speak to provide us with the same signals.
For example, the RSI and stochastic indicators are both momentum indicators that provide the same type of information about the market. However, if we compare the two indicators, we notice that they tend to rise and fall in tandem.
Combining the two indicators can be counterproductive as it can mislead traders into believing they have a confluence of signals. This is simply the same signal, but viewed from another angle.
How to Combine Technical Indicators
The smart way to combine indicators to analyze cryptocurrencies is to use indicators that belong to different categories. For example, you can connect a trend following indicators like a moving average and a momentum indicator like the RSI indicator.
This combination is very powerful because the moving average shows the direction of the trend, while the RSI displays how strong the trend is. So, for example, if the price is above the moving average and the RSI is also above the 50 mid-level, we have a much more reliable signal that shows that we’re in an uptrend and behind the trend, we have strong bullish momentum.
Combining Indicators on Cryptohopper
Other indicators that work well together on Cryptohopper especially are the MESA and the MACD. The MESA is an adaptive moving average and is a sticking indicator on Cryptohopper. Meaning that as long as the MESA shows bullish momentum, it will send continue to send “BUY” signals. Conversely when the MESA shows bearish momentum, it will send continue to send “SELL” signals.
The MACD on the other hand sends a single buy or sell signal. There in this case the MESA can act as a filter, just as in our example with the moving average above. The MACD will thus serve as the entry and exit of the strategy.
The Parabolic SAR is another indicator that works in the same way as the MESA through sticking signals. However, all other moving averages are not made of sticking signals on Cryptohopper. Meaning that they will only send 1 buy/sell signal. Therefore they are not suitable to use as filters like the Parabolic SAR or MESA.
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