While the movement of cryptocurrencies is often chaotic, the activity of trading digital currencies can be very lucrative if one uses the right tools. Of course, every trader has a specific trading strategy. However, there are some popular technical indicators to successfully trade cryptocurrencies. Find out which ones.
While the movement of cryptocurrencies is often chaotic, the activity of trading digital currencies can be very lucrative if one uses the right tools. Of course, each trader has a trading strategy specific to their availability, risk relationship, level of experience and financial goals. However, there are some popular technical indicators to successfully trade cryptocurrencies. These indicators can indeed allow you to give meaning to price action and predict its potential evolution.
On a similar topic: Crypto Trading: 7 Mistakes Not to MakeThe 3 Most Popular Technical Indicators to Use to Successfully Trade Cryptocurrencies1# Moving Average (MM)
The moving average (MM) is a very popular indicator to smooth the price action of a digital currency like Bitcoin. Its main purpose is to determine the trend of a cryptocurrency, but an MM can also provide potential levels of supports or resistances.
A trading system can be used by crossing two moving averages: one short (20, 50) and one long (100, 200). A buy signal can appear when a short moving average crosses a long moving average upwards – and vice versa.
There are three types of moving averages that give a different weighting to recent price action:
- simple (arithmetic mean)
- weighted (more weight at recent prices)
- exponential (more information taken into account)
Discover the different moving averages in this video (French):
2# Relative Strength Index (RSI)
The RSI, Relative Strength Index is one of the most popular indicators in the oscillator category.
It measures how much a cryptocurrency like Ethereum is over-bought (RSI greater than 80 – potential sell signal) or oversold (RSI less than 30 – potential buy signal).
Of course, the RSI in the extreme zone does not necessarily signal that the cryptocurrency will turn around. After all, the relative strength indicator can remain in “overbought” territory for an extended period of time when a cryptocurrency is in a strong uptrend – and vice versa.
Discover the Relative Strength Index in video:
3# Bollinger Bands (BB)
The Bollinger Bands indicator is the ideal tool to measure the volatility of a virtual currency like Litecoin.
Formed by a moving average generally at 20 days to which a standard deviation is added and removed to form two other lines, the Bollinger Bands indicator envelops prices. These high and low terminals often form levels of support and resistance.
Depending on the spacing of the strips, the level of nervousness of investors can be determined. When bands tend to deviate, then strong price movements can occur and volatility is greater – and vice versa.
Discover the Bollinger Bands in video (French):
Generally speaking, technical indicators are essential tools for traders who use technical analysis (TA) in their trading. Indeed, the TA makes it possible to analyze the past action of prices to determine a trend and anticipate the direction that an asset will take. But the signals are not always clear.
Do not think that there is an indicator that guarantees that a trading position will always be a winner because it is simply impossible. In trading, you have to learn to accept and assume your losses. The most important thing is to make sure that your losing positions are less important than your winning positions.
Read: 3 Rules to Successfully Trade Cryptos
If you are not very familiar with these technical indicators but they interest you you should do your own research before integrating them into your trading strategy. Be sure that they adapt well to your trading style and that you understand how they are calculated and what they actually represent.
Read also: 3 ways to make money with coins in 2020
What other technical indicators do you prefer to use to successfully trade cryptocurrencies?