7 Most Important Technical Indicators for Cryptocurrency Traders

You might have heard the term cryptocurrency trading indicators before, but what are they? Technical indicators can be used for cryptocurrency trading to help predict price swings. 

In this article, we will discuss 10 of the most important technical indicators that cryptocurrency traders can use. There is a brief mention of what technical analysis is and how it’s used in cryptocurrency, followed by an explanation about each indicator and why it’s useful for day traders or intraday traders.

What are technical indicators?

Technical indicators are a tool that cryptocurrency traders can use to predict the future price of a cryptocurrency. 

There are many different types of technical analysis, but they all have one goal: To find patterns in data sets and then make predictions about future prices based on these trends.

What is technical analysis?

The definition for technical analysis varies depending on who you ask; some say it’s just an opinion while others explain it as being able to identify market sentiment through interpreting charts. 

Regardless if this is true or not, there’s no doubt that technical analysts play an important role in cryptocurrency trading.

The cryptocurrency trading indicators that we cover are the most popular and will work for a wide range of traders or people looking to day trade. To give you some examples, they include: 

  • MACD (Moving Average Convergence Divergence)
  • MAs (Moving Averages) 
  • Volume Indicators 
  • …and dozens more

When choosing cryptocurrency trading indicators it is best to find what works best with your cryptocurrency pairs because not every technical indicator can be applied across all cryptocurrencies. 

For example, if you’re focused on altcoins then it would make sense for you to use an RSI (Relative Strength Index). If, on the other hand, you’re trading with a cryptocurrency like Bitcoin, then you’ll want to use the MACD or RSI. 

No matter what cryptocurrency you are day trading it is always important that your technical indicators match up with the cryptocurrency pairs being traded.

7 technical indicators you must know as a crypto trader

There are dozens upon dozens of technical indicators that you can use. However, there are only a handful of indicators that cryptocurrency traders need to know.

Some of the most commonly used ones can tell you a lot about the current market sentiment, the potential direction of a coin, and whether you should skew your entries based on bullish or bearish price action.

Reading the current volume and recent trading history is also important. It will tell you how liquid the cryptocurrency market is at any given time.

Checking for divergence on various oscillators can be very useful when looking for directional signals in crypto markets because they’ll help reveal what’s going on with sentiment shifts or reversals in momentum.

1. Relative Strength Index (RSI)

RSI is one of the most popular cryptocurrency trading indicators. It reflects market momentum and helps you determine if it’s a good time to buy, sell or hold cryptocurrency positions.

A cryptocurrency trader can use different parameters for interpreting an RSI depending on their strategy and risk appetite. 

The default setting that many traders prefer is 14 periods with no signal line offset which would indicate overbought levels at 70% – 79%, very oversold at 30% – 39%, and neutral ground in between 40%.

2. Moving Average Convergence Divergence (MACD)

MACD (Moving Average Convergence/Divergence) was originally designed as a stock trading indicator but has been found useful for cryptocurrencies too. This technical analysis tool works by showing how much the cryptocurrency’s moving average is diverging from the signal line.

The MACD can be used to identify key reversals or momentum in a cryptocurrency’s price and it also gives traders an easy way to distinguish bullish and bearish trends. 

A cryptocurrency trader could use this indicator by looking for crossover points, zero-crossing lines, divergence/convergence patterns when plotting the MACD on their chart. 

A 12-day EMA of the MACD should be subtracted from a 26 day EMA of the same (12 – 26) which will generate two lines with one being above another if prices are trending upwards while below if they’re going down. The difference between these values provides visual feedback about trend direction within that

The MACD indicator can provide excellent insight into whether prices are trending up or down by examining bullish/bearish crossovers. It also has an exponential moving average which helps smooth out volatility so long-term trends become more obvious instead of just short-term fluctuations.

3. Bollinger Bands

Bollinger Bands consist of an upper and lower band with a centerline. The bands widen when markets become volatile, narrowing as they settle down and prices move within the range between those two lines.

The RSI is one of the most popular technical indicators in cryptocurrency trading because it can’t be faked or manipulated like market sentiment surveys that are done by humans since it’s based on raw price data from exchanges. 

When there is momentum in one direction but not enough to break through resistance levels, then traders will look for support at recent lows which should hold until investors regain conviction going forward into new highs.

4. Stochastic Oscillator

The Stochastic Oscillator is a momentum indicator that measures the speed and change of price movements. 

It is mainly used to identify overbought or oversold levels in cryptocurrency markets, which would be indicative of an upcoming reversal. 

The Stochastic Oscillator is also known as a “signal” because when it turns from negative to positive territory, this indicates bullish pressure building up and could lead to an entry point for traders at support zones below current prices on cryptocurrency charts. 

5. Ichimoku Clouds 

Ichimoku Clouds are a Japanese technical indicator used to measure the momentum of crypto market trends. 

It does this by looking at four metrics simultaneously:

  • Tenkan-sen
  • Kijun-sen
  • Chikou span
  • Senkou span 

The colors on Ichimoku clouds are:

  • Green for bullishness if it’s above zero
  • Red is bearish below zero
  • Blue reflects equilibrium with an index around 0
  • Black has no meaning in relation to signal or coloration 

The other useful thing about Ichimoku Cloud signals is that they also offer a conversion line (Tenkan sen) as well as a support zone (Kijun sen). This combination provides traders with plenty of information about whether the coin is in a bullish, bearish or neutral position.

6. Fibonacci Retracement Levels

As cryptocurrency traders, we are constantly battling with the volatility of cryptocurrency prices. Fibonacci retracements can offer some insight into where Bitcoin might find support or resistance in price and time. 

The first thing to know about a Fibonacci Retracement is that it has specific rules: The 38.00% level lines up perfectly with candle wicks from the previous two candles on either side (creating what’s called an “extended” Fib). 

If you see this long-legged doji candlestick pattern at any point during your day trading, or if you’re just swing trading for longer periods between 24hrs+ then look out below! Reaching the bottom of that extended triangle means there could be sellers in the market. 

There are also levels that match a Fibonacci Retracement, like 50%, but these don’t offer as much insight into price or time because they’re not in reference to previous candle wicks.

The 77.00% level lines up with two “pullback” candles (candles with smaller bodies) on either side of it and can be an indication for traders that there is indecision about which direction Bitcoin will head next: 

  • To go higher – Look at the bigger body candlestick from before this pullback period
  • To go lower – Look at the longer legs after this pullback period

7. Average Directional Index (ADX)

The ADX is a measure of the strength, trend direction, and duration of the current market. The higher this index goes up on a graph or as a percentage value over time (ADX line), then there may be more indecision about which way a crypto coin will head next: 

  • To go higher > lower would indicate that traders are undecided due to a lack of momentum in either direction
  • To go lower > higher means that cryptocurrency has been trending downward for some time now with no sign of stopping soon

In general, trends can last anywhere from days to months until they reverse course. 

One popular method among crypto traders is how long an upward or downward trend lasts before reversing itself. 

For example: if a coin surges by 20% in a day, it is likely that it will continue to rise unless there are some drastic changes in the market. 

However, if a coin surges by 20% and then falls by another 20%, this signals overbought conditions. It has surged too much too quickly which means traders should be wary of more downward movement.

Conclusion

“Technical analysis brings us a window into what might happen next”. This phrase sums up this article about cryptocurrency trading indicators. 

Technical analysis is a tool that cryptocurrency traders, and really any type of trader, can use to help forecast what might happen next. It takes the guesswork and “hopium” type trades out of the equation. 

Instead, you’ll be able to trade with less risk (and more reward) by using multiple indicators to gather data about what coin to trade next, where to set your stop losses and take profits, and when to close a trade.

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