Crypto markets can be extremely unpredictable, making it hard to know whether you should buy or sell. Thankfully, there are tools that can help you pinpoint market trends and make more informed trading decisions.
Technical analysis uses mathematical indicators and charts to detect trends and possible price reversals. In this article, we’ll look at some of the most widely-used techniques for crypto trading analysis.
Ichimoku Cloud
Ichimoku Cloud is a chart indicator that provides traders with valuable insights. While initially it may appear complex, its usage is straightforward and it provides effective trading signals.
To calculate an Ichimoku Cloud, five data points need to be plotted 26 periods into the future: conversion line, base line and two spans. When added together they create the appearance of cloudiness.
Ichimoku Cloud provides traders with an accurate reading of market sentiment. When the Tenkan Sen crosses above Kijun Sen, this represents bullish sentiment; when Leading Span A crosses above Leading Span B, this indicates bearishness; traders can also look out for Chikou Span to determine whether price breakout is likely.
Bollinger Bands
Bollinger Bands is a technical indicator that crypto traders can utilize for intraday trading. This indicator presents dynamic pictures of possible price reversals and trends primarily using volatility indicators; however, traders should remember other aspects of their market before solely relying on this indicator alone to create strategies.
John Bollinger first introduced BBs as volatility indicators back in the 1980s. They consist of a center line with upper and lower bands acting as volatility gauges; traders can use this indicator on various high-beta assets, including cryptocurrency investments.
Upper bands represent the higher trading range for cryptocurrency prices while the lower bands serve as support bands. When prices of cryptocurrency surpassing an upper band it could indicate an imminent trend reversal.
MACD
Moving average convergence divergence (MACD) is one of the most well-known trading indicators, used to spot trend reversals and momentum changes – making it applicable for both short-term traders and longer-term investment strategies.
This indicator consists of two lines (MACD line and signal line), a histogram, and a zero line, all connected by exponential moving averages of closing prices with different periods. When MACD line and signal line move closer together it is known as converging while when they move apart it is known as divergence.
When the MACD histogram crosses above zero, this may signal a bullish trend reversal; conversely, when it falls below it indicates bearish momentum, which may signal whipsaw movements which can be highly disruptive to your portfolio.
RSI
RSI is an essential indicator for crypto traders to master, though it should be remembered that its results don’t always signal market reversals. Instead, it serves as a momentum indicator by measuring an asset’s strength on up days to its strength on down days.
RSI provides an oscillator value between 0 and 100 that helps traders measure momentum and recognize potential buy and sell signals. A high RSI indicates overbought conditions while low levels indicate oversold conditions; using multiple time frames like weekly and daily charts can help traders discover these opportunities more easily, including double tops/bottoms that might otherwise remain hidden on price charts; this way, they increase their chances of successful trades.
On-Balance Volume
There are various indicators available for technical analysis in the cryptocurrency market. While some are universal, like moving averages and the Relative Strength Index (RSI), others are specific to cryptocurrency such as FOMO indicators or Fear and Greed Index (FGI).
On-Balance Volume (OBV) is an indicator used to predict price movements based on volume flow in and out of securities, providing insight into purchasing and selling pressure. OBV calculations involve adding volume on up days and subtracting it on down days for accurate measurement of purchasing and selling pressure.
OBV is often considered a leading indicator, meaning it anticipates price movements before they actually happen. However, as it can give false signals it should be used alongside other indicators for best results.
