Figuring out both the long and short term price of any asset is vital before making trading-related decisions. It can help measure the asset’s momentum and volume that could be traded within a specified time. Traders use crypto trading indicators to determine the future prices of cryptocurrency.
Crypto trading indicators refer to signals that could determine the direction in which prices of crypto currency will be moving to. The most commonly used ones are the Relative Strength Index, Average Directional Index, and Stochastics Oscillator. Other common indicators that may be used are on-balance volume, average directional index, and moving average convergence divergence.
Relative Strength Index
Abbreviated as RSI, the Relative Strength Index helps traders quantify possible gains and losses that an asset may have made over a stated period. The simplistic nature of the indicator allows it to be used by both newbies and experienced traders. It will help you to predict whether an asset is overbought or oversold. If the asset RSI is below 30, the cryptocurrency is oversold, while anything around 70 shows that it is overbought. RSI could also be used to determine if the crypto is in a bearish or bullish phase. If it is below 50, it is bearish, while RSI that is above 50 is considered bullish.
This is a 2-line momentum indicator that measures how a closing price differs with a range of prices within the stated period. It uses the previous 14 days’ prices to determine the score. If the score is below 20, it indicates that the crypto is oversold, while a score that is above 80 tells the trader that the crypto is overbought. It is one of the crypto trading indicators that use a chart that features both the %K line that traces crypto momentum while %D is a simple three day moving average of the %K. The best time to either sell or buy is when the %K line cuts under or over the %D line, respectively.
Moving Average Convergence Divergence is a popular indicator that predicts when the short term price trend begins or reverses. Traders can calculate this indicator by subtracting the twenty-six-day EMA (Exponential Moving Average) from the 12-day EMA. If the 12-day EMA is over the 26-day EMA, then MCD is positive and tells the trader to buy since the momentum is rising. But when the 26-day EMA is above the 12-day EMA, it is time to sell as it indicates declining momentum.
Average Directional Index
Traders use the signal to perceive the quality of price movement. It’s score ranges from 0-100 and is considered a non-directional signal since it may not show the direction in price movement. The Average Directional Index may be used to perceive the strength of the downward or upward momentum.
It shows both the direction and how strong the signal may be. Typically, it is set on a scale ranging from -100 to 100. Anything above 0 indicates upward momentum, while a score below 0 tells the trader it is a negative trend. A directional change in AO indicates the reversal of the direction of price.
On Balance Volume
It is one of the crypto trading indicators that help to accurately predict the price of cryptocurrency depending on the volume of transactions. A sizeable shift in volume shows that prices will be increasing in the future.
Of course, there are other indicators that a trader may choose to use, but the above six technical indicators will give insight into the future position of a cryptocurrency and the possible price action.