As cryptocurrencies are becoming more mainstream, more and more people are entering the crypto trading market. While this is a good thing for the greater adoption of crypto, it is often challenging for beginners to quickly learn how to trade. It’s great that there are so many resources out there with different price indicators. However, it can be difficult to find 2 key price indicators that you can use to make quick trading decisions. That is why I have put together a list of 2 key price indicators that every crypto trader should know.
Price indicators are the foundation of technical analysis, and they have been around since the beginning of trading. While the principles of price action analysis are timeless, the indicators themselves are constantly evolving to stay relevant in the digital age.
Cryptocurrencies like Bitcoin and Ethereum are known for their extreme volatility within a 24-hour period. The price of a single unit can fluctuate by 20 percent or more during this time, which makes it difficult for traders to buy and sell these assets at the ideal price. The good news is that there are two key price indicators available to cryptocurrency investors that can help you better understand whether or not a cryptocurrency is over or undervalued at the moment. (You can learn more about these indicators in the article below.). Read more about best indicators for crypto day trading and let us know what you think.Technical analysis, or the study of chart patterns, is a tool that allows traders to increase their edge over others. To do this, the trader stays on the right side of the trend and issues warnings when the trend is about to reverse. There are many indicators and models that can accomplish this task, but there is no specific indicator that is appropriate for all market conditions. This is why traders prefer a combination of indicators that are useful in both trending and changing markets. However, this does not mean that a trader should overload every chart with all available indicators. In some cases, using too many indicators only complicates the decision-making process and creates confusion rather than helping the trader. As traders develop their chart-reading skills, they tend to reduce the number of indicators and use those that best suit their trading style. And in this case, there is no perfect set of indicators that will produce better results than others, it’s just a matter of preference and practice. This article discusses moving averages and the relative strength index. Without going too deep into the technical aspects of each indicator, we will focus on the main ways to use them effectively. The methods presented here are by no means exhaustive. There are many other options and traders can use the ones that suit them best. The statement can be used as a guide to further improve analytical skills.
Moving averages are trend following indicators or are also called lagging indicators because they give delayed feedback after the price movement has already taken place. The most commonly used time frames for trading and investing are the 20, 50 and 200 period moving averages. Short term traders also use 5 and 10 period moving averages, but these tend to fluctuate and may not be suitable for everyone. There are four types of moving averages: simple, exponential, smoothed and weighted, but the most commonly used are simple and exponential moving averages. Exponential moving averages allow recent price data to weigh more heavily in the calculation, so they tend to react quickly to price changes. In contrast, a simple moving average gives equal weight to price data, so it tends to respond relatively slowly to price changes. Therefore, traders usually use EMAs for shorter time frames, such as 10 and 20, because they detect changes quickly, while simple moving averages are used for longer time frames, because trends usually do not change direction quickly. In this example we use the 20 EMA and the 50 SMA.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum indicator that captures price movements and acts as an oscillator fluctuating between 0 and 100. As a general rule, a value below 30 is considered oversold and a value above 70 is considered overbought. While these limits work well in a limited-bandwidth market, they tend to give false signals during trend periods. The most popular time frame is the 14-period RSI. However, this is not invariable, as short-term traders may use a 5 or 7 period RSI, while long-term investors may opt for a 21 or even 30 period RSI. One of the most popular uses of the RSI is to detect divergences, which alert traders to a possible trend reversal. Now that we have covered the basics, we will look at some methods of using indicators for analysis. The first thing a trader needs to learn is to recognize the trend. Trading in the direction of the trend is profitable as the established trend offers several profitable trades. Let’s take the example of cryptocurrency price movements.
Examples of a market limited to
Daily chart BTC/USDT. Source: TradingView In a defined market, the moving averages overlap and do not deviate up or down for an extended period of time. Look at the area outlined by the ellipse in the chart above, where bitcoin (BTC) has remained in a range and the moving averages have flattened. These markets are generally directionless, difficult to predict and difficult to trade. DOT/USDT Daily Chart. Source: TradingView As can be seen in the chart above, Polkadot’s (DOT) price was stuck in a range and the moving averages were flat without direction. When the price is largely held between two limits, the market is said to be in a range. Next, let’s try to identify the trending market, because that’s where the most profitable trading opportunities occur.
Determine upward trend
Daily chart BTC/USDT. Source: TradingView Bitcoin is essentially stuck in the 1 range. August 2020 to 20. October 2020. Meanwhile, the moving averages were flat and directionless. On the 21st. However, on 2020 October, the price broke out of the range and the RSI also entered the overbought area. At the start of a new trend, the RSI usually remains overbought in the initial phase of the trend, and that is the case here as well. As the price went up, the 20 EMA began to roll out, and the 50 SMA followed. When a trend starts, it tends to persist for a long time. Let’s look at another example of a trend. DOT/USDT Daily Chart. Source: TradingView After the DOT was notified by the 6. September 2020 to 27. December 2020, he left this area on December 28, 2020. December 2020. The RSI also reached overbought levels above 70 and the moving averages began to tilt upwards. Note again that the 20-day EMA rose quickly, while the 50-day SMA was slow to catch up. In the above case, the ROI did not remain overbought for a long time, but remained above 50, indicating that one rule does not apply to everything.
Determination of downward trend
Unlike bullish trends, which take time to form and remain strong over a long period of time, bearish trends are turbulent and can either last a long time, like the 2018 cryptocurrency bear market, or change direction quickly after a sharp drop. Daily chart BTC/USDT. Source: TradingView In the above chart, the trader must pay attention to two important points. First, the RSI has formed lower highs since late February, although the price has continued to rise. This is a classic sign of a possible trend reversal. Again, this is not foolproof, but if traders combine the signal with price action, the chances of avoiding disaster are high. The negative divergence on the RSI became significant when the moving averages made a bearish crossover where the 20-day EMA, which had been above the 50-day SMA for the past few months, broke below the 50-day SMA. This was a sign that the short-term price movement was weakening and that the trend could be reversed. After staying in that range for a few days, bitcoin broke on the 12th. May is out and the moving averages are starting to turn downward. This, along with the presence of the RSI in negative territory, has been a signal for traders to reverse the trend. As long as price remains below the moving averages and the 20-day EMA and 50-day SMA continue to trend lower, the trend will remain bearish. DOT/USDT Daily Chart. Source: TradingView The chart above shows that the DOT is stuck in a range after an uptrend and that the moving averages are aligned and have crossed. It’s hard to call it a top because the price could have gone either way. However, when the trader also examined the RSI, it showed negative divergence warning of a possible reversal. The sharp decline at 19. The month of May confirmed the downtrend when both moving averages started to pull back and the RSI was in negative territory.
Remember that no signal is absolute!
For most inexperienced traders, moving averages and RSI are essentially a starting point for identifying trends. Investors who are new to trading should definitely practice recognizing the underlying trend, as this can prevent them from trading against the market and getting burned. The following articles discuss entry and exit strategies using indicators. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and every transaction involves risk. So you need to do your own research before making a decision.As the crypto market continues to grow, more and more traders are entering the space on a daily basis. As such, the amount of available information continues to grow as well. With so many different sources, it can be hard to figure out which ones are worth following. Luckily, there are a few key price indicators that every trader should know. ~220.127.116.11.18.104.22.168. What is the difference between “Direct speech” and “Indirect speech”?. Read more about best tradingview indicators cryptocurrency and let us know what you think.
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