• Technical analysis is used to identify profitable trading opportunities.
• Indicators such as RSI, Bollinger Bands and MACD can be used to help confirm winning trades.
• By understanding the supply and demand of an asset, traders can use these indicators to predict potential future price changes.
Cryptocurrency trading has evolved from the perception of simply being a game of chance to a strategic process. Successful traders rely on a combination of technical analysis, specific indicators and metrics to find trades with a high probability of profit. Technical analysis involves looking at the past trading activity and price variations of a crypto asset, with the goal of understanding how the supply and demand of a specific asset might influence its future price changes. By using charts to evaluate price trends and patterns, it’s often been possible to find profitable trading opportunities.
Indicator — is a tool that helps traders make decisions in the market. Select indicators on cryptocurrency market charts are used to measure different aspects of market activity. Ultimately, traders use them to try and predict potential future price movements. The three indicators for crypto trading examined here are: Relative strength index Bollinger Bands Moving average convergence/divergence
Relative Strength Index (RSI)
The relative strength index (RSI) measures momentum — whether an asset is overbought or oversold. It does that by comparing the closing price with the asset’s 50-day moving average. If the current price of an asset is within 10% of its 50-day moving average and has been trending upward for at least two days, the RSI reading is considered to be above 70, which qualifies as overbought; on the other hand, an RSI reading under 30 is thought to be oversold. A strong upward RSI momentum tends to point to an impending rally. Look specifically for this type of RSI divergence: two lows, where the first low is higher than the next low, followed by an RSI where a lower low is followed by a higher low. Such a divergence signifies a potential bullish move ahead in prices.
Bollinger Bands are lines plotted two standard deviations away from a simple moving average (SMA). The upper band indicates overbought levels while lower band indicates oversold levels when markets become too volatile or too range bound in sideways action; this action can trigger buy or sell signals when prices hit these levels accordingly . Traders should look for Bollinger Band squeezes that occur when volatility contracts so much that both bands come together; this often precedes explosive breakouts typically accompanied by heavy volume—an indication that smart money may be entering or exiting positions en masse causing large moves in prices .
Moving Average Convergence/Divergence (MACD)
Moving Average Convergence/Divergence (MACD) uses two exponential moving averages (EMA) set at different lengths which are then subtracted from each other forming histograms on charts; if one EMA line crosses above another it’s seen as bullish while if it crosses below it’s seen as bearish . Divergences between MACD readings and underlying prices signify reversals may take place soon while crossovers indicate signals may follow shortly after . These signals should always be taken with caution since they’re lagging indicators meaning they don’t pick up trend changes until after they happen thus making them prone to false readings .