There are a number of ways to use Technical Analysis (TA) to trade cryptocurrencies, it's often best to keep it simple when it comes to guiding your daily trading. You may find you prefer looking at only a pair of indicators to suggest entry points and exit points. At most, test out a bunch of them singularly and then in combination. You may end up sticking with some of them.
Here are some experienced day traders’ favorites: Bollinger Bands, Moving Average Convergence Divergence (MACD), and Relative strength index (RSI). Picture 1 below is showing how to find these indicators on BitMart futures.
Picture1. How to find the indicators on BitMar Futures
Bollinger Bands are a type of statistical chart characterizing the prices and volatility over time and were developed by John Bollinger in the 1980s. According to Bollinger, periods of low volatility are often followed by periods of high volatility.
Bollinger Bands primarily show the expected volatility range of an instrument based on its previous performance shown in the form of lines around the moving average that illustrates the range in within [which] this price ‘should’ operate. It’s believed that if it exits this range, the trend will still continue very often, the narrower the range, the stronger the movement will be. Check the yellow arrows in picture 2 below, after a price is wedged into a narrow price range, a powerful exit from it often follows. This can be seen on even the simplest chart without using indicators.
Picture2. Bollinger Bands show the expected volatility, on BitMar Futures
Moving Average Convergence Divergence (MACD)
MACD is a trading indicator method used in technical analysis of stock prices and was created by Gerald Appel in the late 1970s. MACD will show the trader the difference between two shifting averages.
The larger the indicator value the stronger the ongoing trend. At the moment when it is suspended, the shift begins converging as the indicator nears zero. This is considered to be an input signal, while the indicator crosses the zero line is a more reliable although much slower signal. It’s an indicator more suited for trading on trends. Check the yellow arrows in the chart below:
Picture3. Moving Average Convergence Divergence, on BitMar Futures
Relative strength index (RSI)
The relative strength index (RSI) can suggest overbought or oversold conditions by measuring the price momentum of an asset. The indicator was created by J. Welles Wilder Jr., who suggested the momentum reaching 30 (on a scale of zero to 100) was a sign of an asset being oversold—and so a buying opportunity—and a 70 percent level was a sign of an asset is overbought—and so selling or short-selling opportunity. Constance Brown, CMT, refined the use of the index and said the oversold level in an upward-trending market was actually much higher than 30 and the overbought level in a downward-trending market was much lower than 70.
Picture 4. RSI with lower 30% line & upper 70% line, on BitMar Futures
AT last, here are tips for you before you are professional in using trading indicators:
1.Always remember that: indicators don’t forecast prices but simply enable visualization in charts and show some median figures where the price was located during the period under scrutiny.
2. There is also the risk that too many indicators will muddy charts with excess overlays and make it difficult to interpret the information.
3.Whatever indicators you chart, be sure to analyze them and take notes on their effectiveness over time. Ask yourself: What are an indicator's drawbacks? Does it produce many false signals? Does it fail to signal, resulting in missed opportunities? Does it signal too early (more likely of a leading indicator) or too late (more likely of a lagging one)?
4. If there’s a trend in the market, it doesn’t matter what indicators of any sort you could be using, then it’s easy to make money. If it’s a side market, no indicator will save the trader, so you’d better take a break or start to enter a short position.
ATTENTION: Cryptocurrency investment is subject to high market risk. Please make your investments cautiously. This is not investment advice, or an endorsement by BitMart as to the intrinsic value of a digital asset, or a commitment by BitMart team to support any speciﬁc asset/token that the announcement pertains to.
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