Indicators for Crypto Trading
Whether you’re stacking sats or accumulating more DOGE than Elon Musk, it pays to know certain indicators for crypto trading. It doesn’t matter if you are a swing trader, day trader or someone who just loves to HODL; these tips apply to anyone trying to profit off of the notoriously fickle crypto market.
What Does a Mathematician from the Middle Ages Have to Do with Maximizing Your Profits?
Whatever your ultimate goals are, chances are that you’ve heard the name Fibonacci tossed around. Crypto Twitter seems to be especially fond of the Italian genius. If you hang around for a bit, you’ll notice that day traders especially tend to rely on Fibonacci and his sequence. But what does it all mean? Essentially, Fibonacci has given us numbers that correspond to the golden ratio in nature. In the crypto world, Fibonacci’s sequence allows us to guesstimate sweet spots for entering and exiting investments in crypto.
These natural cycles have a knack for revealing themselves, allowing traders to short altcoins and BTC for maximum profit if they so desire. As far as Fibonacci goes, using this indicator is much easier than it may sound at first. In a world where not much is predictable anymore, this is one indicator that has worked consistently for the past 800 years.
Indicators for Crypto Trading – It’s All About Volume
Although it may seem excruciatingly simple when you first hear about it, volume is another indicator that can really predict where the market is heading in the short term. For those who buy their crypto and HODL for years, this may be a less useful indicator. But for day traders and others who like to make more short-term buys, trading volume is an essential tool. It lets traders know what the general mood is in the market. If there’s a lot of trading happening, one can assume that the level of excitement is building. And it’s this kind of excitement that has led to historic highs in the crypto market.
Of course, traders who prefer short-term action are going to want to get out before they experience one of the epic crashes for which the crypto world is so well-known by now. The way to avoid such pitfalls is to carefully study volume. And for those who are just dipping their toes into crypto, taking a look at volume can be a great way to begin making predictions about the market. After all, every new trader needs to start somewhere. Volume is probably the best indicator to master first on one’s crypto journey.
Where Do All These Charts Come From? MACD!
If you do happen to develop favorite crypto follows on social media, you’ll probably notice a lot more charts than you’re used to seeing if you started in traditional investing. The MACD (Moving Average Convergence Divergence) is one of the indicators for crypto trading most beloved within the community. Day traders love to use these charts. This is because they demonstrate the relative bearishness or bullishness of a coin by using two fluctuating averages. These averages tell the traders when to buy or when to sell. It’s all about looking at “the crosses”, which is a term that you will also hear frequently if you follow crypto influencers online.
Ideally, MACD can provide great signals for those who want to know when to buy. However, MACD is a trading indicator that many prefer to use in conjunction with other tools. There are some who believe that MACD has led them astray at times, which is why it recommended for traders to take a more macro approach when using this method. If you want to avoid overbuying and overselling, it’s best to also take into account factors such as volume and RSI (Relative Strength Index).
Indicators for Crypto Trading – RSI
For day traders who prefer to get in and out, using RSI can be a revelation. After all, when the market hits those heady highs, sometimes it can be difficult to know when it is time to sell. With RSI, traders can learn to quickly spot signs of an upcoming reversal or correction in the market. Those who believe in RSI often use software to help them spot the trends. Using the numbers between 0 and 100, RSI separates the bears from the bulls. When the numbers register below 50, it would seem that it is not a good time to buy. When they shoot over 50, one can usually begin to see a bullish pattern emerging.
Crypto software can urge traders to act a bit more conservatively and to lean less into the neutral numbers, meaning that many traders will only buy once they see a 70 or higher. Likewise, some might not sell until they see 30 or below. However, traders need to do more research before using RSI alone and selling off immediately. When uptrends are taken into account, some may perceive that they need to hold on to an asset for a bit longer before selling. As always, the effectiveness of this tool rests upon the knowledge of the trader putting it to use.
Candlesticks and the Ichimoku Cloud
As you explore further, “candlesticks” is another indicator for crypto trading you’ll hear thrown around pretty frequently. Ichimoku Cloud is a method that relies upon these candlesticks to make predictions about where prices are headed. By examining price action and time, traders can create a visual chart that shows the aforementioned cloud. Trends above the cloud are good, indicating that prices will continue to rise.
Meanwhile, trends below the cloud tend to suggest downward movement. Any action inside of the cloud paints a picture of a stagnant asset that isn’t moving anywhere for the time being. For those who love visual cues, it’s difficult to find a better guide than the Ichimoku Cloud.
Indicators for Crypto Trading – A Winning Strategy
As you can see, there are many different ways to approach the art of crypto investment. There is no one-size-fits-all approach, as each trader comes to the table with a different set of goals in mind. Some relish the excitement of shorts while others prefer not much action at all. You’ll need to tailor your strategy based on what you’d like to achieve. It may take several indicators to get you to see the picture clearly. And you may come to rely upon just a few to let you know where your new favorite asset is headed.
As always, diversifying is a good idea. Relying upon tried and true crypto trading indicators like volume will always put you on the right path. And using the right software to examine market trends will almost always provide you with a more streamlined approach to maximizing your assets and mitigating any losses. Even in a market that is as wildly unpredictable as crypto, there are ways to suss out what the future may hold. And the good news is that there is no crystal ball required – just a lot of charts.
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About Ben Broadwater
Ben Broadwater is the Director of Investment U. He has more than 15 years of content creation experience. He has worked and written for numerous companies in the financial publishing space, including Charles Street Research, The Oxford Club and now Investment U. When Ben isn’t busy running Investment U, you can usually find him with a pair of drumsticks or a guitar in his hand.