Dec 30, 2022
5 Important Indicators Used in Technical Analysis
It’s common knowledge that many things in life depend on timing to be successful. For example, waiting for a pair of shoes to go on sale will save you money, and picking the right moment to inform your team about an innovative idea for the company just might earn you a promotion.
The same idea holds true in the crypto market; entering a trade at one point can make you hundreds of dollars while executing just a little later might earn you losses. If you’re looking to do everything you can to improve your market timing, you’ve got to employ multiple technical analysis indicators. This guide will explain five essential indicators you can use to improve your trading decisions.
What are Technical Indicators?
Technical analysis indicator is simply a signal that can be gathered from data on crypto price charts and indicates which position will put you on the best path for market opportunities.
When considering technical indicators, it is essential to understand that technical indicators are derived by using a set of specific data, usually the crypto asset’s price. In doing so, a trader can determine the market’s patterns, price directions and trends.
5 Best Technical Indicators Used by Crypto Trading Experts.
- Moving averages
If you are a beginning trader, you may want to start with the simplest indicator. The moving average, though simple, is widely used by professional traders. With moving averages, you compare the averages of charts that span two different ranges. For example, you may compare a 7-day average with a 30-day average. Next, look at the way the two averages crossover. You can predict a bearish market if the crossover comes from up to down, and you can forecast a bullish market if the crossover comes from down to up.
- Bollinger bands
This technical indicator works on the fact that a market’s value can rise or fall depending on two standard deviations. Each of the standard deviations is plotted on either side of a moving average graph of the prices. So basically, Bollinger bands are used to gauge whether a price is considered high or low based on the price history.
- Relative strength index (RSI)
The relative strength index, or RSI, is the relative strength of a crypto price when compared to its previous prices. The RSI is used to determine whether an asset is being overbought or oversold. In a period of usually 14 days, you will be looking at bearish and bullish changes in the prices. You have to divide the sum of the bullish trades by the sum of the bearish trades. The answer is an index from 0 to 100. If the value is more than 70, then the asset is overbought (bearish). In contrast, if the value is below 30, the asset is oversold (bullish).
- Stochastic
A stochastic indicator is a good tool for determining whether the market is strong or weak. This technical indicator shows that if the price rises during the trading day, it is more likely that it will end up near the maximum price for the day. In contrast, if the price falls during the trading day, it is also more likely that it will end up near the minimum price for the day.
A stochastic indicator is best used as a timing tool and can show trend changes where you can enter a trade position. In addition, the stochastic indicator performs more efficiently when combined with the RSI.
- Moving Average Convergence Divergence (MACD)
The MACD is a momentum gauge that can be computed by finding the difference between two exponential moving averages. The MACD closely follows the trends. The MACD is different from moving averages in the sense that with exponential moving averages (EMA), much more weight is given to the more recent prices than the rest of the prices plotted on the graph.
Wrapping Up
There are hundreds of technical trading indicators. However, the above list contains indicators that are widely used by advanced traders. Using or combining these technical indicators can minimize loss and maximize profits.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.
