Best Cryptocurrency Trading Indicators
I recall when I first started trading in cryptocurrencies—I was a boy in a candy store, and coins seemed to jump out at me wherever I'd go, and each one seemed to have its opportunity at being "the one." Before long, I discovered guesswork wasn't working in such a scenario. That's when I started studying trading indicators in depth. By "indicators," I mean expert tools for processing information in the marketplace—picture them as a compass when hiking through new woods. If trading for real, you'll have them in your pocketbook.
Here's why they're such a big part of trading for real. Cryptocurrency markets are moving at lightspeed, and a rumor can blow prices through the roof or down in an hour, an hour and a half, or even a minute. With no guiding system, becoming mired in the muck is simple. Indicators give a guiding system and paint a picture of whether a market's trending, trending down, or simply moving sideways in a range-bound manner. It can detect overbought and oversold, a key consideration when deciding to enter a position or sit out a move.
I've played with many indicators—known ones and lesser-known ones—and have discovered most work best when grouped in an assortment. In terms of a superhero team, each player (or indicator) possesses its superability. For one, a trend indicator could have overall direction, and a momentum indicator could have the intensity of movement. One can confirm one's cues by employing several, making getting blindsided less likely.
I also want to mention the human touch. Indicators are excellent, but they're not clairvoyant. They won't warn you of an unforeseen crackdown in a particular country, a tweet about a technology giant that sends markets into a tizzy, etc. That's when your individual touch comes in. Through years of trading, I've developed my listening skills to charts and the news. An indicator will blurt out a bullish signal, but I proceed cautiously if I catch a whiff of impending nasty news.
Are you looking for the best trading indicators for cryptocurrencies? It's worth remembering your trading personality. Do you have a high-flying, heart-pounding, I'm-only-playing-these-shorts-for-a-few-minutes kind of personality? In that case, you can rely a little less on momentum and volume gauges and a little more on momentum and volume gauges. Do you swing for days, even months, and ride trends? Well, then, your moving averages and other long-term trend statistics will power your trading arsenal.
Either way, I'd share one tip with any trader: never stop experimenting. That's one of the best things about cryptocurrency trading: it's relatively new, and new tools and techniques regularly appear on the radar. Even mature indicators can be optimized. You'll employ a new Relative Strength Index (RSI) setting for lesser-known coins or MACD with a volume oscillator in a configuration no one else has tried.
Before I wrap up this section, I'd leave one final point: indications must work for your trading ideology, not drive it. Set a strategy that works for yourself—one that works with your tolerance for risk, your schedule, and your aims. Then, use indications to confirm that strategy and verify and negate what your gut tells you. I have found that gut and technical analysis bring steadier success. After all, at its root, a trade is a human conclusion, which means that the best tool, in the long run, is yourself.
Learning About Crypto Trading Indicators
The first time I entered the crypto world, I remember feeling overwhelmed by an ocean of plots, charts, and technical speak. I thought I was trying to learn a new language—"candlesticks," "breakouts," "Fibonacci retracements," name them. But then I understood trading indications, and it was a cloud parting. I could make sense of all the madness at that stage. Indications became my interpreter, taking unprocessed, raw information about the marketplace and translating it into readable terms.
At a simple level, crypto trading indications are math recipes run with price, volume, or open interest data from the past. They report to us about future price activity that will likely occur. Some will report trends, some will track momentum, and others will target volume to assess investors' enthusiasm for a move in a direction. All will use a different formula, but all are trying to answer one question: "Where is the marketplace moving?"
Now, the beauty of these indicators is that they're adaptable. In my trading, you can use them over a range of timelines—from minute-by-minute scalp trading to monthly, even annual analysis. As a new entrant, you can begin with one simple one that comes naturally, such as a Moving Average, smoothing out price data to provide a general direction. As your confidence level grows, you'll likely add a few additional ones to your chart, creating an "indicator stack." That stack can be simple, complex, or whatever your heart wants.
One of the largest misconceptions about indicators is that they're magical wands. I'm not afraid to admit I bought in early in my career. I'd see a buy sign in a specific tool, go headfirst, and then have the marketplace move counterintuitively. Over a few years, I realized that indicators represent one part of a larger picture. They don't compensate for out-of-left-field news, emotion-fueled reactions, and manipulative big-player activity. You'll still have to have your eyes and ears out for a more considerable marketplace nuance.
I saw value in changing settings for your indicators, too. Most have default settings—like the RSI at 14 periods—but those settings don't have to be concrete. Certain coins and specific markets will respond to shorter, more extended periods. It takes testing and experimenting. For instance, you can have your RSI at 10 in a high-volatility environment in a coin and have a more accurate picture of its near-term moves.
Another crucial point to understand is that indications can both lag and lead. Lagging indications, for instance, such as moving averages, confirm trends when they have begun. They can work beautifully for a long move but will miss rapid reversals. Lead indications, such as Stochastic Oscillator, or RSI, attempt to foretell future reverses even before having occurred, but with a high probability for spurious warnings. In practice, I use a combination of both—leading indications to pick early shifts and lagging indications to confirm a trend's strength.
One of my most liked aspects of delving deeper with indications is opening doors to high-tech trading strategies. As your confidence level matures, you can experiment with techniques such as divergence, in which the price moves in one direction. Still, an indication is moving in a contrasting direction. That can be a strong sign of an ongoing trend in its demise. You can also master reading crossing indications, such as when the MACD line crosses over or under the sign line. All of these types can work as an early alarm, alerting you about a trend about to stop or about to begin.
Sometimes, I'd prefer to picture each one of them in a boardroom: the trend one is the big-picture, conservatively thinking one, the momentum one is the impulsive buddy who's ever looking for the big swing, and the volume one is the down-to-earth one who sees who's getting in and out with everyone else in the current move. When all these "people" agree, I trust in my moves. And when not, I have to go deeper and sit out and wait for a little more to become apparent.
Lastly, remember, remember, remember: the marketplace isn't static. An indicator that works beautifully in a trending environment will tank in a churning one. I believe in constant studying and continuous practice through ongoing learning. Journal your trading activity. Write down which tools produced reliable cues and which failed to deliver. Over a span, your gut will develop a knack for knowing when to trust and when to trust not. Briefly, understanding your trading indicators is reading your marketplace's personality. Tuning into your marketplace's radio station, when you tune in to the correct one, your cues arrive loud and clear. Naturally, a slight static will sometimes enter your ear, but with practice, your ear will become attuned, and you will sort out the din and understand the melody. And when you have faith, are knowledgeable, and have a lot better chance in a dizzying marketplace, that's for darn tootin'!
What Are Crypto Trading Indicators?
Crypto trading indicators are algorithms, or mathematical formulas, that use price and volume in the past, plug them into mathematical computations, and then spew out graphical indications onto your chart. There are many forms they can take: lines moving between specific values, bands that enclose price, and even changing-colored histograms over some time. Whatever shape whatever form, they're all attempting to exploit past information to make future guesses easier for you to make.
From my experiences, I have discovered that when you understand the "why" of these indicators, your use of them will become easier. For instance, a Moving Average takes an average price over a group of a specific number of periods in an attempt to level out price fluctuations over shorter-term trading horizons. It's similar to taking an average performance over a group of runs in a car to gauge its overall distance traveled, not one single trip when it happened to run through a lot of traffic. Conversely, tools such as the RSI monitor how rapidly the price moves, offering an awareness of whether a coin is overbought or oversold.
The best part about them is that any form of trading can utilize them: scalpers, swing traders, long-term investors—anybody can capitalize on them. I prefer taking a small collection of them and having them corroborate one another's messages. For instance, when my RSI reports about a market being oversold and my MACD reports a bullish crossover, that's a one-two punch that I pay a lot of attention to.
But don't forget, indicators don't have a crystal ball. They work with past data; therefore, they're a beat behind what's taking place in the current price action. That's why I'm not all in; it's simply because an indicator told me to. I counterbalance that with fundamentals, market emotion, and my tolerance for taking a loss. Ultimately, an indicator is a guiding star that helps map your path and drive yourself.
Why They're Important
I'm not being coy with you: the crypto marketplace can go bonkers. Prices swing in both directions in double-digit percentages in a matter of a few hours; a rumor can start a stampede, and even a rumor can have speculators fleeing for cover. Having something to stand on is significant in an environment such as that. That's when an indicator comes in. Indicators matter because they present a structure and a fact-based view when everything else seems wacky.
To start with, indicators remove a lot of emotion from trading. I remember during my early days in my trading career when I'd allow my actions to be guided by my gut and feelings. I'd sell when a marketplace crashed overnight and run in when a coin took off, afraid I'd miss out. Most times, I'd burn my fingers with these gut instinct plays. Indicators helped me have a less emotion-charged view, a reminder to view the big picture, not my gut instinct.
Another key fact is that you can perceive opportunity with indicators when it's not mainstream. Let's say a coin's been trading sideways for a week or two. All at once, a volume-based indicator is trending upward, and more buyers are getting in. That could be your early sign that something's a-brewin'—a potential breakout. You could have been brought into position when your mainstream sources started sniffing out.
Indicators work marvels for managing your risk, too. Many traders brag about stop-loss orders, but nobody ever mentions how they choose stop locations. Volatility gauges such as Bollinger Bands can give an approximation of a coin's general price range and then allow you to position stops in not-too-tight (which will yield early stop-outs) and not-too-loose (which will yield gargantuan drawdowns) locations. I have saved my skin a dozen times by using such gauges to make my stop positioning smart.
And then, of course, there's one of my pet favorites about indicators: discovering hidden divergences—situations in which the price forms a higher high, but your indicator forms a lower high, and vice versa. Often, these represent warnings that a current trend is in its dying days and about to reverse direction. Without an indicator, such nuance can go undetected with your naked eye. In my book, following such divergences has proven a real game-changer. It sends me warnings about the impending top and bottom forms long in anticipation of your average follower in a coin's community ever knowing it's happening.
Finally, indicators impart discipline. It's easy enough to switch between methodologies—one day trending, then mean reverting—but it's not that simple when your heart is sore with a loss. With a group of reliable indicators, one must follow a script. Sit and wait for cues, confirm them, and then act. That kind of discipline can mean success and failure over a long run of years.
So, then, are indicators trading's holy grail? Not even close. There'll be mistakes; sometimes, even a seasoned player can get blindsided with a move in a most unfortunate direction. But indicators can act as powerful tools that allow one to ride out a storm, preserve one's wits, and make less seat-of-the-pants and much less emotion trading.
Best Cryptocurrency Trading Indicators
What are the best trading indicators for cryptocurrencies? There's no one answer for everyone. What will work best for you will depend on your trading style, coin, and willingness to sit in front of a computer monitor for a long time. That being said, a few consistently appear in a trader's arsenal and for a reason.
The first group is the moving average (MA). Simple, exponential, weighted—name your poison, but whatever form, its function is to smooth out price information in an attempt to reveal the general direction. Most use a combination of a short-term and a long-term moving average and track a crossover, forecasting a potential direction change for a coin's trend. It's like driving down a highway and seeing cars merge: merge points will inform whether traffic will slow down or quicken.
Next up is the Relative Strength Index, or RSI (you can use whatever name works best for your purpose!). A 100 to 0 oscillator tells you about overbought and oversold stocks. It's not flawless, I'll admit, but it's a real lifesaver when I see it fall below 30 (signs of undervaluation?) or climb over 70 (a potential pullback!). I even use the RSI to grab a coin at a bargain price, only for it to go off and fly through the roof!
The MACD (Moving Average Convergence Divergence) is a similar fan favorite. It is best for seeing momentum turns and potential turns in trends. When MACD's moving average line jumps over its signal line, a bullish move could soon be in your future; when it dips below, a bear move could be in your future, too. With volumes, MACD crossovers can make surprisingly effective entries and exits.
And then, of course, there's Bollinger Bands for a reading of volatility. Plotting upper and lower bands over a moving average shows when price "bands" narrow and expand and when times of low and high volatility prevail. Narrow bands often forewarn big breakouts—think of a spring winding and then springing free!
Every one of these tools works for a specific purpose, and the key is discovering what mix works for your trading style. Some fanatics swear only for one, two, three, and then everyone else with a dozen stuffed onto a single chart (I shudder at even contemplating it!). My thinking? Begin simple, learn a two, and then gradually build your arsenal. It's about discovering that sweet spot in between when your tools work together and harmonize with your overall trading ideology.
