Crypto trading is an extremely speculative market and thus making price movements harder to predict than in traditional markets. However, certain technical indicators such as On-Balance Volume Indicator (OBV) can work effectively within this sphere of trading.
This tool keeps an eye on prices and trading volumes in order to provide an overview of the cryptocurrency market. Furthermore, trendlines enable traders to easily identify support/resistance levels within an asset class and target them effectively.
Moving averages
Moving averages are an essential tool in trading, helping traders identify price trends and directions while filtering out noise caused by day-to-day price fluctuations. They also allow traders to identify potential support and resistance levels – this feature of Good Crypto’s app automatically generates signals based on 15 Moving Averages and 10 Oscillators.
Traders can select from various moving average time periods in order to find one that best matches their trading strategy. For example, one trader might prefer using a simple moving average (SMA), while another trader might go for an exponential moving average (EMA).
Moving average crossover is the process by which a short-term SMA crosses over its longer-term SMA and marks a shift from sideways market conditions towards an optimistic outlook for bullish investing. Investors often use it as an early warning sign.
Bollinger bands
Crypto traders can utilize Bollinger bands to identify trading opportunities based on the volatility of cryptocurrency assets. This charting indicator features two outer bands and a middle band formed from a simple moving average with standard deviation multiplier, and their width indicates price volatility; wider bands denote greater price swings while narrower ones indicate decreased ones.
Bollinger bands can help traders determine potential trend reversals, breakouts and significant price movements with other technical indicators and market analysis tools such as Bollinger bands. But these tools must always be combined with risk management practices such as position sizing to prevent losses.
Bollinger bands offer one of the easiest strategies for trading: “Riding the Band.” This involves purchasing coins when they break above or hit below their upper bands and selling when their price action reverts back within their lower bands – thus making this strategy successful since most price movements happen within these boundaries.
Aroon Indicator
Aroon is an influential indicator used by traders to spot trends across multiple financial instruments and timeframes. The central assumption behind it is that markets regularly form new highs during an uptrend, and new lows during a downtrend. The Aroon indicator consists of two lines; Aroon Up measures how long since prices made new highs while Aroon Down measures when prices made new lows.
Like other lagging indicators, the Aroon isn’t predictive but many traders appreciate its ability to quickly identify changes in trend direction. Furthermore, its combination with other indicators such as Minus Directional Indicator (-DI) or Plus Directional Indicator (+DI) provides confirmation of such shifts in momentum.
To use the Aroon indicator in MetaTrader, open a chart and choose Insert > Indicators > Custom > Aroon. Once added, its settings can be seen under Parameters tab – by default 25 periods are selected but you may adjust accordingly to meet your trading strategy needs.
Relative strength indicator
A relative strength indicator (RSI) is an invaluable trading tool for cryptocurrency traders. It employs a formula to calculate the price of any given cryptocurrency by taking into account both average gains from up periods and losses from down periods. While not designed to predict exact prices, an RSI provides helpful directionality by showing which direction the trend lies in.
There may be times when the RSI and price will provide contradictory signals, known as a divergence, which can serve as a useful warning sign of market reversal. For instance, if prices continue rising while the RSI decreases this could indicate that bullish momentum has faded significantly.
The Relative Strength Index (RSI) can also be used to detect overbought and oversold conditions in cryptocurrency markets, with overbought cryptocurrencies trading above 70 whereas oversold ones being listed below 30. Furthermore, traders can create trendlines on their RSI to help determine optimal entry and exit points for trades.
