Predicting Bitcoin price direction is not easy. Therefore, when investing or trading cryptocurrencies, we use all the tools at our disposal to make the most correct decisions possible.
The technical analysis indicators are some of those tools that can help us predict the movement of any cryptocurrency.
But in this article I will not dwell only on the technical indicators that I usually use because I find them useful. I will also talk about some sentiment indicators which allow us to analyze cryptocurrencies from the perspective of market participants, instead of just focusing on price.
What are the best indicators for cryptocurrency trading?
Technical analysis indicators are tools at our disposal apply mathematical formulas to variables such as price of an asset so that we can analyze the charts more accurately.
If you are looking for the best trading indicators to trade bitcoin, altcoins, forex or any other asset, I have to tell you that in general the indicators themselves are neither good nor bad. Moreover, there are no indicators that will serve all the objectives or indicators that will show us what will happen for sure.
Therefore, in my opinion, the best indicator is the one that benefit each of us and help us make decisions. The most important part when we want to use a certain indicator is to spend time understanding some of these points:
- What information does it provide?
- how it’s built
- How it can help you with your cryptocurrency trading strategies
- Test it to see if it gives me a real boost to my system
That being said, I will walk you through what I consider to be the best cryptocurrency trading indicators. On the one hand, there are the technical analysis indicators that are useful in any market and on the other hand, some sentiment indicators specific to the crypto market.
Mobile media (MM)
Moving averages are a technical analysis indicator responsible for calculating a constantly updated average price. In this way, you can see in the charts in a fluid way the price development over a certain period of time.
Moving averages are indicators that act in a delayed way because they are formed with past data. For example, the simple moving average over 50 sessions of Bitcoin corresponds to the calculation of the arithmetic average of the price over the last 50 days. The data is reflected in the graph and is constantly updated.
Usually two are used types of moving averages: simple and exponential, the most used periods being 20, 50 and 200.
Personally, I use mobile media for two things:
- Analyze trends: both the direction and the integrity of the trend and whether it is overextended.
- Possible areas where price may react: Moving averages are followed by many traders, so they usually act as dynamic support and resistance. I use them as reference points when price is moving up or down towards them and always in relation to other factors.
MACD is one of the most widely used indicators in all types of trading. take care of track trends and measure momentum, that is, it indicates whether the price is accelerating or decelerating. Basically, it compares past price behavior with current behavior using exponential moving averages and the relationship between them. The parts that make up this indicator are the MACD line, the signal line and the histogram.
One of the most common uses is to determine changes in the direction of the trend by divergences, that is, when the price indicates one thing on the chart, but our indicator another. For example, in a bullish divergence, the price makes a higher high, which is not confirmed by the MACD.
It is also often used as buy and sell signals according to the intersections of the lines that form it.
CM Super Guppy Indicator
If what you are looking for is how to read trading charts in a very visual way, the CM Supper Guppy indicator may be of interest to you. You can get an idea at a glance how the price behaves and how it «flows».
It consists of several exponential moving averages combined into a single indicator. Specifically, use 7 fast EMAs and 15 slow EMAs.
It’s quite intuitive because using different colors and the separation that occurs between EMAs we can feel how the price is moving, in which direction or how the volatility is changing.
But like any tool, it takes time if you want to apply it and build a strategy around it. The basic color guide would be:
- Green and blue during an uptrend
- Gray indicates uncertainty in price direction
- Red and orange during a downtrend
To use it you need to add it to Tradingview, there are several versions. The one I use is the «CM SuperGuppy» from the author FritzMurphy.
The name of the indicator comes from the Fibonacci sequence, created by the Italian mathematician Leonardo of Pisa in the 13th century.
The Fibonacci retracement They are a common tool predicts potential support and resistance areas. When the price is in a trend and reversing, the indicator shows different levels that the price can react to. These levels are derived from the original Fibonacci sequence, the most common being: 23.6%, 38.2%, 50%, 61.8% and 78.6%.
Another way to use this tool is to Fibonacci expansionswhich are used to find possible profit targets once a pullback or reversal has occurred.
The volume tells us that the value of an asset bought or sold in the market and is one of the most important indicators.
There are many volume indicators such as OBV (On Balance Volume) or ADL (Accumulation/Distribution Line). Personally, I don’t like to complicate things too much, so I use the basic volume indicator which is depicted on green and red vertical bar charts.
A common mistake is to think that the color of the bars is important. Many people believe that red bars indicate sell volume and green bars indicate buy volume. The color is simply determined by the close of the candlestick and often does not clearly determine the volume from buying or selling.
Fear and Greed Index (Cryptocurrencies)
The index says Crypto Fear and Greed Index is an indicator that measures the sentiment of the cryptocurrency market. It is not a marker that exists only for this type of investment, as the idea was originally developed by CNN for the stock market. But its mission is the same, to measure two of the main emotions that influence investors: greed and fear.
The Investors tend to be very greedy when the market suddenly goes up. and buy more than they should for fear of missing out, which is called FOMO. On the other hand, they tend to sell irrationally if the market crashes.
So, a lot of euphoria can indicate that we are overbought and a lot of fear that we are in an oversold situation.
This indicator looks at various factors and gives a value ranging from 0 to 100. Zero means “Extreme Fear” and one hundred means “Extreme Greed”.
The bitcoin dominance To display What % of the total crypto market capitalization belongs to BTC and how much to the rest of the altcoins.
This indicator helps us better understand altcoin cyclesi.e. whether generally the alts are in an uptrend or downtrend against Bitcoin.
Bitcoin dominance values are easy to understand: if it was a hypothetical 100%, all market money would be in Bitcoin, and if it was 0%, all would be in altcoins. Logically, at this stage, the extremes are impossible and the values are always intermediate.
The key to everything is to understand that when Bitcoin dominance rises, altcoins as a whole lose value to BTC. Yes when dominance decreases, altcoins gain in value against BTC. Therefore, in a way, it is a relative strength index that helps us to think strategically: when theoretically we should invest in bitcoin and when in altcoins to get a better return on our money.
Binance LONG/SHORT Ratio
Binance added a while ago trader sentiment data who use their cryptocurrency futures and personally I often look at BTCUSDT contract data.
It gives us information about the number of futures accounts on the Binance platform that have long positions open and the number of accounts that have short positions open. Considering that Binance is the platform with the highest volume of transactions on this type of derivatives, the data is important.
In short the long/short ratio is an indicator of traders’ expectations. For example, a high value of the ratio indicates positive expectations, and a low ratio indicates expectations of lower prices. Like many other indicators, its usefulness is often not the value at a given moment, but its evolution over time, hence the variation in the view of prices in the future.
These are some of the indicators available, but there are many more. What works well for one trader may work poorly for another, depending on many factors.
Therefore, we must try to determine what is best for each of us.