5 Indicators to follow in the crypto market
For beginners looking to foray into technical analysis- Calculative market moves are better than just a mere decision of risk.
The crypto market is uncertain, and it’s pretty unpredictable to forecast the market movement or price direction. However, indicators come to use to a certain extent to read the market action of buyers and sellers and form a clearer picture. Most beginner traders find analytical and technical market study challenging to follow, but the experienced market players confirm them to be a profitable foundation.
1. RSI (Relative Strength Index):
RSI is a market trend analysis to estimate the value of an asset. Due to its volatility identifying feature, it is simple and widely used by traders. It is an oscillator, meaning it comes back to its original state; in this case, the index represents a market trend, and an opposing behaviour is more likely to happen.
The crypto value of 30 and 70 is considered the threshold value by the traders. When the crypto price is below 30, it is understood to be oversold and indicates correction with a buy action. When the price is above 70, it’s understood as overbought and shows a good time selling crypto or putting buying on hold.
The popular timeframe set for an RSI trading indicator is of 14 days. Although, Some traders use a 5–7day time frame and a few 21 days time frames, based on the trading duration.
2. Bollinger Bands:
Bollinger bands are of great importance to traders to identify the market volatility. It indicates price movement and fluctuations within the band whose width is between the maximum and minimum prices, which are irregular. The middle band shows the simple moving averages of the past 20days.
Any price movement crossing either band suggests a reversal in the opposite direction. Bollinger bands further point buy and sell opportunities when the price reaches the extreme ends.
3. Moving Averages:
MAs are known to be lagging indicators as they are dependent on historical prices. It eliminates market noise and shows the trend direction by smoothening the curve. There are 2 types of Moving Averages:
- Simple Moving Averages (SMA), and
- Exponential Moving Averages (EMA).
SMA weights all data sets equally. It is calculated by bringing out the average of a specific period of data; for instance, 10 days SMA is calculated by finding out the average price from the past 10 days. At the same time, EMA emphasises recent data and has complex calculations. It is receptive to recent price movements.
As the duration of the interval defines the magnitude, a 200 day SMA will have a slower response than a 50 day SMA.
4. Moving Average Convergence Divergence (MACD)
MACD is another technical indicator that implies the strength and direction of the market movement. It uses the connection between two moving averages and determines the asset’s momentum.
Formulaic representation of MACD = 26 Period EMA — 12 period EMA (at closing prices).
A positive MACD represents an upward movement, signalling a bullish cross and a good time to buy. Similarly, a negative MACD indicates downward movement signifying a bearish market and a good time to sell.
You can look out for trend strength by noticing divergence between price movement and MACD.
5. Stock to Flow Model:
It calculates the ratio of asset availability and the quantity that increases over time. For instance, Bitcoin production is limited, making it scarce; the supply is halved every four years and will stop by the year 2140. It leads to more demand and price rise. This model creates an assumption based on the scarcity value or asset flow.
It is a widely accepted market indicator and an effective tool to estimate asset price and market movements.
Whichever indicator you use, doing your advanced research is crucial. It is also important to remember that all these indicators are subjective and do not imply 100% risk reduction. It may be a clear signal for you, but it may seem to be market noise for another trader. Lastly, these indicators should be excelled with practice and completely understanding. You need to be very careful using them to maximize your profit potential.
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Disclaimer: Crypto assets are volatile, and investments in them are risky. We advise you to do thorough research before investing.