Technical indicators
Technical indicators are widely used by technical analysts to predict future price movements of assets. These indicators are based on historical asset information such as volume traded, price (open, close, high, low), short float, and open interest. There are thousands of different technical indicators available to traders. The following indicators are some of the most widely used.
Volume
The most basic indicator out there is probably the volume traded which shows how many assets have traded hands within a certain time. The volume indicator is useful when looking how significant a certain price move is. Price movements combined with high volume are always considered more significant than price movements with low volume.
Moving Averages
The simple moving average (SMA) is pretty straightforward. A set number of periods are taken from which the average is continually calculated. This could for example be the average price of the past 30 days. This is done to smooth out the choppy price action.
The exponential moving average (EMA) is a weighted average that assigns more weight to recent prices. So recent price movements affect it more than they would the simple moving average.
In technical analysis, moving averages are used to spot trends (reversals). Traders often use multiple moving averages with different time frames. When the short term moving average crosses below the long term moving average, a downtrend is confirmed. An uptrend is confirmed when the short term moving average crosses the long term. Moving averages can also be used as support and resistance.
Relative Strength Index (RSI)
The RSI is another widely used technical indicator. It is a momentum indicator that calculates the number of up moves in relation to the number of down moves. The RSI number can be anything from 0 to 100. Traditionally, the asset is considered oversold when the RSI is below 30, indicating that it is ready for an upward move. The asset is considered overbought when the RSI is above 70, indicating that a downward move could be incoming. Some choose to be more conservative and put the oversold level at 20 while putting the overbought level at 80.
The formula for the RSI is as follows:
X = Number of periods
RS = Average of all up moves in the last X periods / Average of all down moves in the last X periods
RSI = 100 — (100 /1 + RS)
The standard number of periods used for the RSI is 14.
Divergence
Oscillator indicators are indicators that oscillate in a set range like the RSI (0–100). Such indicators are used to spot bullish and bearish signals in the form of divergences. In the case of a bullish divergence, the asset sees a new low while the oscillator fails to reach a new low. Bullish divergences are often used to predict a bounce after a downtrend, or even a reversal of the downtrend. A clear example can be seen below with the RSI below the ETH/USDT chart:
