When going into Cryptocurrency trading, the goal is to be profitable. Everyone knows the risk involved of losing your capital can lose your capital, but the allure of making money far outweighs the risk. To further contain these risks and make your trading more profitable, there are some basic indicators that can help make your analysis more accurate and increase profitability. In no particular order, these indicators are:
1) The RSI: The RSI is a momentum indicator that shows the trader whether an asset is being overbought or oversold. It performs this function by measuring the level of recent price changes in the market.
This means that when momentum is increasing and at the same time price is rising, then the uptrend is strong and more buyers are coming into the market. Inversely, if momentum is decreasing while the price is rising, it may show that sellers are soon to take control over the market. A simple way many people interpret the RSI is that when it’s over 70, the asset is overbought, and when it’s under 30, it is oversold. When it's overbought you can expect a reversal as traders might begin to sell off for profit and when it's oversold you can also expect a pullback as many will begin to buy. It is a great forecasting tool and shows key points to get in or exit a trade.
2) BOLLINGER BANDS: Bollinger Bands are used to measure the volatility in the market, as well as the rates at which the markets are overbought or oversold. Bollinger Bands are made up of three lines - an SMA (the middle band), and an upper and lower band. The settings may be a bit different, but typically the upper and lower bands in most are two standard deviations away from the middle band. As volatility increases and decreases, the distance between the bands increases and decreases as well.
One way you can interpret Bollinger Bands is that the closer the price is to the upper band, the closer to being overbought the Cryptocurrency you are monitoring may be (and you can expect a reversal). Inversely, the closer the price is to the lower band, then the currency is likewise close to being oversold conditions and at this point you can look to buy as it might increase in price. Another way in which traders read Bollinger Bands is what is called the squeeze. This is a period of low volatility, where all the bands come very close to each other. This may be used as an indication of potential future volatility. Conversely, if the bands are very far from each other, a period of decreased volatility may follow.
3) SIMPLE & EXPONENTIAL MOVING AVERAGES: The Moving average unlike the other two we have looked is a lagging indicator. The previous two we have examined (the RSI and Bollinger Bands) are indicators that shows you the market as it happens presently, while the Moving Average is based on past price data. It helps the trader to smooth out price action by filtering out the market distraction and highlighting the trend direction. There are two commonly used Moving Averages and they are; the simple moving average (SMA or MA), and the exponential moving average (EMA).
The Simple Moving Average is simply plotted by taking price data from a specific period and from therein producing an average. For instance, the 30-day SMA is plotted by calculating the average price over the last 30: days. The Exponential Moving Average, on the other hand is the opposite of the Simple moving Average, it is calculated based on the recent price data. This makes the Exponential moving Average more reactive to recent price action as opposed to the SMA which is a fully lagging indicator.
As I have previously mentioned, the Moving Average are lagging indicators but the EMA is a slightly more recent rice based of the two. While using the Moving Averages, traders look at past price action and by so doing predict how the prices will swing next.
It will however be worthy of note that no indicator is perfect all the time. They might give false and misleading data so it’s not advisable to depend on only one indicator for market data. I personally use the Exponential moving Average, the RSI and the Bollinger bands to better understand what direction the market is moving in. you also should learn not to depend on just one indicator alone.
NOTE: This does not in any way constitute technical analysis advice. Pls always endeavour to carry out research before entering a trade. Trading is risky and should be approached with caution.