In order to determine the long and short term price direction of an asset, crypto traders employ various technical indicators.
These indicators can be used to identify momentum, volume, quality of price movement and other data. The technical analysis makes use of these mathematical calculations, or ‘signals’, in order to figure out how the price of a cryptocurrency will act.
Such strategies involve employing certain patterns and figuring out if they can be aligned with the current and past price movements of a certain asset.
In today’s article, we will be looking at some of the most known technical indicators which are used in crypto market analysis.
1. Relative Strength Index (RSI)
The term of RSI was coined by J. Welles Wilder in 1978, and today it is one of the best- known indicators in the crypto world, being employed in determining the strength and points of potential reversal a current price trend has.
The indicator calculates the gains and losses of an asset during a fixed period of time. It is employed by both beginners and advanced traders, as it is easily customizable when it comes to its parameters.
RSI can help a trader figure out if a market is overbought (above 70) or oversold (under 30), helping them decide if they should get involved in specific markets.
2. Fibonacci Retracements
Fibonacci Retracements are used to determine the levels of resistance and support in the financial market as well as crypto markets. The Fibonacci ratios have been applied to stock price analysis, the concept emerging somewhere in the 1930s.
It is based on the Fibonacci number sequence, and it can determine which are the potential levels at which traders can make strategic buy or sell orders. The most important resistance levels for financial markets are often believed to be 38.2%, 50%, and 61.8%.
The MACD is a Moving Average Convergence and Divergence Indicator which was developed by Gerald Appel in 1970.
This useful pattern helps traders create histograms for specific markets, which can showcase the short-term evolution of the markets in question. This indicator also determines if a market is in an overbought or oversold state. Bullish divergence and bearish divergence are usually called strong signals in this case.
4. Bollinger Bands
The Bollinger Bands pattern is used to calculate the range and rate of price volatility, which is a great advantage seeing as the crypto markets have sharp price movements.
Bollinger Bands can be used to spot rising or falling price trends, volatility and swift price movements. The indicator ranges between simple and strong signals, which are often called in the industry the “double bottom” and “double top” signals.
Most beginner traders make use of this indicator, though advanced traders also employ this pattern as well.
5. Stochastic Oscillator
The Stochastic Oscillator is a two-line momentum indicator which intimates the momentum of the trend. In simpler terms, it shows the trader which direction a trend will have. The Stochastic requires two weeks on average before it predicts the price direction.
The Stochastic Oscillator calculates the difference between the closing price of the crypto and the range of prices over a defined time period. The result will be situated between values ranging from 0-100, and if the value is situated over 80- there is an overbought asset and is it’s under 20- is an oversold asset, similar to how an RSI scores.
6. Average Directional Index
This indicator has the role of determining if a price movement is qualitative. The ADI gives values which go from 0 to 100. ADI is a non-directional signal, meaning that it doesn’t determine a specific direction for an asset’s future price movement. It is utilized to specify the strength of an upward or a downward trading moment.
If a trader gets an ADI score over 25, then he or she can carry out the implementation of trend-trading strategies, while a score under 25 shows the contrary.
ADX Score Strength:
- 0–25: No Trend
- 25–50: Weak Trend
- 50–75: Medium Trend
- 75–100: Strong Trend
7. On-Balance Volume
On-Balance Volume (OBV) is used for price prediction by relying on volume changes of transactions. This cumulative indicator calculates the total sum of positive and negative volumes. The principle of this indicator is that any drastic changes in volume will identify the upcoming price direction of an asset.
If the volume sees a steady rise with no price variations, the OBV indicator will rise and predict that a price increase will occur soon. If OBV is decreasing while the price sees no changes, it predicts that a drop in the asset’s price will happen in the near future.
Traders can use a variety of technical indicators in order to determine what movements will occur in crypto market prices, so they can establish which future position they can adopt in order to generate maximum returns.