Best Indicators for Crypto Trading
Are you looking for massive returns in the crypto market? Do you want to know the tips and tricks you could follow to increase the opportunities to make a profit? If yes, then this article will be a great read. All crypto traders agree that extreme volatility in the market can reduce your chances of getting good returns on your investment.
The fluctuations in the crypto industry require traders to use the right set of tools that can provide signals for making profitable trades. Here we have the 8 best crypto trading indicators that can suit the trading habits of all kinds of investors.
Whether you are a day or a swing trader, these indicators can significantly increase your chances of making a profit. Want to know more about crypto trading indicators?
In this article, we have covered everything you need to know about the best indicators for crypto trading to ensure a pleasant cryptocurrency trading experience.
What is a Trading Indicator?
A trading indicator is a dedicated tool that uses mathematical calculations and graphs and analyzes trends to predict the direction of the market. Although trading indicators cannot provide you with the future prices of assets, they can be excellent predictors of future trends so that investors can make beneficial decisions accordingly.
Traders use indicators with a trading chart to assess the right time to enter or exit the market and minimize the risk of incurring a loss.
Moreover, the main purpose of these indicators is to highlight the trading opportunities for an investor to increase the chances of making a profit. In the crypto world, indicators provide signals to investors enabling them to buy and sell at the right time for profitable returns.
Trading Indicator Types
Trading indicators for technical analysis are divided into two types: Leading and Lagging Indicators. Leading Indicators predict future trends based on price actions, whereas Lagging Indicators focus on past price actions to help you make beneficial trades. These indicators are further divided into subcategories explaining how they provide signals based on price actions.
Trending indicators are a type of lagging indicator that focuses on an asset’s price direction as an objective measure to assess the strength of a trend. These indicators simplify the price data into a signal line enabling better interpretation of the points of entry or exit from the crypto market.
Volume indicators assess the strength of a trend by analyzing the movement of volume. A high volume indicates that the price movement will follow an upward trend, whereas a low volume indicates a trend reversal highlighting that the price will witness a drop in the near future.
Volatility indicators assess market volatility by measuring the rate of price movement no matter what trend it follows to provide a better overview to the traders. These indicators can help you analyze the right time to buy or sell despite the fluctuating market conditions.
An oscillator indicator is a leading type of indicator that studies market trends in terms of the speed of price movements by comparing prices over different periods. This type of indicator is also known as a momentum indicator due to its oscillation between two price limits with an average price.
Moreover, the limits help in the prediction of price movements enabling traders to know when the market is overbought or oversold and what will be the likely direction of the price.
Best Crypto Trading Indicators
As you have now understood the types of indicators, here are the best indicators for crypto trading one could try in 2022.
Relative Strength Index (RSI)
The Relative Strength Index is a type of oscillator indicator developed by Welles Wilder in 1978. This strategy is represented by single lines moving sideways between two parallel lines. This indicator can measure the movement, speed, and magnitude of change in prices according to the overbought or oversold market conditions.
The RSI indicator ranges between 0 to 100 for the trend analysis of the market. A score of below 30 signifies that a crypto asset is oversold, whereas a score of above 70 indicates that it is overbought.
In some cases, the trend can relax towards the overbought or oversold side for sustained periods. Many crypto investors feel that the RSI indicator is a great tool to combine with other indicators and increase the chances of beating the market.
You can get signals of the entry and exit times using the relative strength index (RSI), enabling you to prepare or leave a trade to ensure good returns on your investment. You can also detect divergence signals according to the current trend of an asset’s price.
Moving Average (MA)
Moving Average (MA) is a great tool that can be used in the crypto market to understand price actions better. The moving average indicator is used in technical analysis to assess the average price of an asset over different time periods.
This technical indicator can predict the trend direction based on the bullish or bearish signs in the market. You can modify the time frames you want to consider on a price chart, such as the 20-day, 50-day, and 200-day period.
Moreover, the selection of the time frame by a trader indicates the approach used to assess the support and resistance levels in the market. If a trader opts for a 200-day period, it indicates the motive of long-term trades highlighting that the trader will observe market trends patiently.
Moving averages are also known as lagging indicators based on their function to provide delayed feedback after a price movement has occurred. They have different types based on the approach adopted by a trader but work efficiently when deployed in combinations.
Simple Moving Average (SMA)
A simple moving average indicator effectively captures trends that do not change quickly. It is calculated by adding the closing prices over a particular time frame and dividing it by the total number of periods taken into account.
The SMA approach enables traders to assess the average price actions, and it is recommended for long-term investors. It is based on candle sticks shown on a data chart as soon as a new candle shows up, this indicator changes its position.
Smoothed Moving Average (SMMA)
The SMMA approach is a bit more complex than the simple moving average (SMA) as it provides a narrower analysis of market trends. It takes into account a longer period to provide a clearer picture for defining the support and resistance levels.
The SMMA indicator includes more historical data as compared to the simple moving average, which eliminates short-term fluctuations that could lead to disruptive trading signals.
Exponential Moving Average (EMA)
Exponential moving average is a great tool for day traders as it sums up the recent and historical data to provide a better picture of the price chart. It reduces the lag and short-term price momentum, enabling quicker trading decisions.
Exponential moving average calculates moving averages prioritizing the recent data over the historical one to assess a reliable trend making it one of the most accurate crypto indicators for day trading purposes.
Weighted Moving Average (WMA)
Weighted moving average is another common type of moving average popular amongst short-term traders. It measures the trend by using data to calculate moving averages from the recent daily closing prices of an asset, following a progressive approach to forecasting short-term market movements.
It is a great tool that can be complemented with other moving average indicators for a better understanding of the changing trends in cryptocurrency trading.
Bollinger Bands (BB)
Bollinger Bands is a type of crypto indicator that can be used to predict short-term and long-term price momentum and highlight the dispersion of an asset’s price over an average value. It uses the concept of standard deviation to calculate the market volatility and provide a clear sense of direction to a trader.
Moreover, the Bollinger Bands indicator consists of three components: the upper and lower bands with a middle band. The middle band is a simple moving average line with two positive and negative standard deviation lines on either side.
As the volatility increases, the distances between the bands also increase, indicating that a trend is running out of its momentum. The most important feature of these indicators is the ‘Squeeze Effect,’ which highlights lower fluctuation in the market, thus enabling the trader to take advantage of the market conditions.
The price movement is toward the upper band if the market is overbought. On the other hand, if the market is oversold, the price shrinks towards the lower band so that you can devise your trading strategy accordingly.
Analyzing the upper and lower band, you can make your purchase decisions related to a crypto asset. Therefore, Bollinger Bands can be an effective indicator in helping you form the trading strategies required for amazing returns on your investment.
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) consists of three components: the MACD oscillator, a single line, and a histogram. The convergence refers to two different moving averages that move towards each other, whereas divergence refers to the separation of two underlying moving averages from each other.
The MACD indicator interprets the line, momentum, and trend of an asset’s prices to identify if it is following a bullish trend or depicting a bearish sign to the investor. When the MACD line moves above zero, it is a bullish sign indicating a good entry point. Similarly, when the MACD line falls below zero, it is a good time to exit the market.
The MACD indicator catches the weakening of the bullish trend using moving averages to assess when prices start to form new values. The MACD line is the faster one, whereas the signal line is the shorter one and their movements indicate trend establishments.
When the MACD line crosses the signal line (slower one), it signifies that a new trend has been initiated. Therefore, the moving average convergence divergence indicator can be a great predictor for technical analysis, especially in the case of a trend divergence.
MYC Trading Indicator
The MYC indicator is a trading tool that combines momentum oscillators and trend analysis to predict whether a crypto asset will follow a bullish or a bearish trend. It provides a trendline that enables traders to assess whether a long signal will be provided when the price of an asset rises.
Unlike other indicators such as Bollinger Bands and the Relative Strength Index, the MYC momentum indicator provides accurate entry points enabling traders to catch up on any opportunity they can avail according to the current trading price.
Ichimoku Cloud is a visual tool that is a combination of several technical indicators. It uses support and resistance levels and five component lines to create a cloud. The cloud formed then indicates the trends according to the price changes.
Moreover, this indicator can be a great tool for day traders, and it can be complemented with other tools to confirm trends and ensure good returns on your crypto investment.
Fibonacci Retracement Indicator
This indicator enables traders to identify turning points in the prices to know the right time to enter and exit a market. It analyzes the support and resistance levels so that traders know about the direction of an ongoing trend.
Stochastic Oscillator Indicators
This is a type of leading indicator that determines the strength of momentum between an average value of a cryptocurrency. It compares the closing price of an asset in a high-low range in a certain time period.
The closing price of a crypto asset can imply the buying or the selling momentum, indicating the right time of entry or exit from a market.
Trading Indicators vs. Your Own Trading Strategy
A trading strategy is a comprehensive approach with a set goal and plan of action to mitigate the risks and make profitable trades in the cryptocurrency market. However, crypto trading indicators provide you with a sense of direction to follow if you want to beat the market.
Therefore, a trading strategy can be complemented with trading indicators if a trader aims to be successful in the market. These indicators can be an essential part of your strategy providing you with meaningful insights about the points of entry and exit from the market.
FAQs: Are Crypto Indicators Worth It?
Do Technical Indicators Work For Crypto?
Although the best technical analysis indicators for crypto allow a trader to gain valuable insights about the market, the cryptocurrency market is a relatively new concept with little historical data making accurate forecasting a challenging process.
Therefore, you can use technical indicators for crypto trading, but it is recommended that you should not rely on them solely for making well-informed decisions.
What Are Social Media Indicators?
Social media indicators are online marketing strategies that can be a great choice for assets with smaller market capitalization. The main types of these indicators include the Crypto FOMO indicator and the Fear and Greed index.
The FOMO indicators measure the rise in prices as a result of people purchasing an asset due to the fear of missing out. In contrast, the Fear and Greed index provides sentiment analysis as a result of trend reversals.
Which Indicator Is The Best For Cryptocurrency?
The best indicators in cryptocurrency trading vary according to individual investors. Your personality and situation determine the suitability of a trading indicator, so it is important that you consider a holistic overview when choosing the best indicator for your trading needs.
Here we have a detailed guide on the best crypto indicators that can be followed in 2022. Regardless of your trading style, these indicators can provide valuable insights into the market that can lead to beneficial trades.
However, you need to understand that this is not financial advice, and this content is recommended for educational purposes only. You need to consider all aspects of your situation, such as your trading style and goals, to determine which indicator might be the right fit for your investing needs.
We hope this article will enable you to identify the best crypto trading indicator that will make your investments worthwhile.
Zornitsa is the Editor-in-chief at Coinlabz. She is involved in researching the impact of blockchain technology and the way crypto is transforming peoples’ perceptions of finances.