Technical indicators in cryptocurrency trading: types and why are they needed

Technical indicators in cryptocurrency trading: types and why are they needed

Successful trading on the crypto-market with the help of technical analysis rarely goes without technical indicators. They are built into most large cryptobirds and often confuse the novice. However, to understand them is easy enough to understand what indicator reflects and what is needed for. Having understood the purpose of at least the key ones, the player will be able to conclude the bulk of transactions consciously, and understanding the purpose of each transaction is the basis of successful trading. We will understand what the technical indicators are!

What are technical indicators in cryptocurrency trading?

If you look at the cryptocurrency market strictly mathematically, you can see that it consists mainly of a number of variables. They are the price at the current moment, the price at a selected moment in the past, the number and size of transactions, and so on.

In fact, a crypto market consists of numbers interacting with each other, and this interaction determines the current price of an asset. With a detailed analysis of these figures, respectively, we can predict what will happen to the price at least in the near future.

An ordinary person cannot track, retain and calculate all the mathematical data provided by the market, since there are too many of them, they change quickly, and within a second a person does not have time to get all the information that relate to the current second.

Getting the same data at the same time, and others – after a few minutes, the accuracy of the forecast will break. So that it was possible to strictly obtain a number of mathematical market data at the same time and form part of the forecast for it, technical indicators were invented.

Naturally, it is impossible to fit all the numbers and all variables in one chart, therefore there are many indicators. As a rule, not a single trader is used by many, almost duplicating each other, the variables are repeated, and the result is graphs that reflect almost the same part of the market picture.

Therefore, each market participant chooses those indicators that are most understandable to him among analogues, do not duplicate each other, use the maximum number of the most important variables and, thus, cover most of the picture.

Over time, a number of indicators emerged that are used by the largest number of traders due to convenience, clarity and inclusiveness compared to others. These are key technical indicators.

Main technical indicators in cryptocurrency trading

That is, the course can grow rapidly – it will be a strong uptrend, or it may be weak – it will be a weak uptrend.

The relative strength index makes it possible in the first place to draw conclusions about whether the trend will continue to be observed, how much, how long, when to expect a reversal, and at what point it is best to enter the market. It allows you to build forecasts based on the so-called “figures”, an example of which can serve

For example, its approach to 100% says that the market is overheated, the price of the asset is too high and will soon go down. An approach to 0%, on the contrary, signals that the asset has potential and that it is worth expecting its long-term growth. Or, say, if extremes opposite to the trend are formed on the indicator chart, we can expect a trend reversal.

Moving averages is a graph based on the average value of any indicator, most often the rate of cryptocurrency. It can be displayed both in the form of a line and in the form of columns (they are also “candles”) – this is not important.

The MACD indicator is based on several different moving averages. Often it is for different time periods, say, for 1 hour and for 6 hours. Depending on how moving averages converge or diverge over selected time intervals, conclusions can be drawn about the trend.

The forecast is made on the basis of the analysis of historical data on cryptocurrency. Stochastic projects the current situation on the market on similar situations in the past, and, based on the data, predicts what can be expected from the asset being analyzed.

The stochastic is guided by the rules that everything in the market repeats itself, that the market moves in waves (that is, after a recession, it rises and vice versa) and impulsively (jumps).

If on the uptrend 4 jumps happened and each subsequent maximum exceeded the previous one, and then 3 jumps happened, where the highs were below the highs on the first 4 jumps, then we can conclude that the trend subsides and you need to prepare for its weakening, correction or even reversal.

Ordinary charts can be used as indicators. The same moving averages charts that display the graph of the movement of the cryptocurrency.

A good indicator can be a graph of the depth of the market, which displays a general picture of supply and demand, along with charts of the volume of trades, which reflects the volume of trades. Moreover, it is desirable that the last one includes separately the number of transactions, and separately – their size.

Should I use technical indicators to cryptocurrency market?

Indicators were developed by financiers for certain markets — traditional ones. They have been used there for decades, and key indicators have become key for a reason, but because their use has brought tangible benefits to traders.

Over time, key indicators have spread to most markets, where they have also shown their applicability. In this way, thanks to time-tested universality, they appeared on the cryptocurrency market.

The cryptocurrency market as a whole differs little from the traditional ones. Mainly because of its participants are the same, or at least the same people as those who trade traditional ones.

The customers have the same thinking, the methods of responding to the market situation are the same, therefore the assets on the crypto market and the traditional ones behave more or less the same. And therefore, the technical analysis and its key indicators in particular are successfully applied on the crypto-market.

It is more volatile, and assets have other features and therefore are traded differently. It is impossible to trade assets that are not in stocks, just as stocks, nor can you trade assets that do not have the properties of traditional currencies, as well as traditional currencies.

In addition, market participants are slightly different. Many of those who came to the market for the first time is a result of low entry thresholds, or because of the high profitability of the crypto market, or because of sports interest.

Experienced people come to the traditional market, react to the market situation in the most reasonable way, but the “most reasonable image” is usually one and therefore predictable. Therefore, the traditional market is predictable, and the indicators on it work perfectly.

On the crypto-market a little differently, the reactions here can be anything, including unreasonable and illogical. This reaction leads to losses, but the market is confusing these reactions.

Indicators that are based on logical reactions, receiving reactions as illogical reactions as variables, also give forecasts that are not entirely correct.

A simple example is a person who buys an asset when its price has risen above the average, it is inappropriate time to buy it. Behind him, the second newcomer does the same. On the indicator, this will be reflected as a signal for a trend reversal, a decline in price, a correction, but in reality nothing will happen, the trend will continue to grow, and the indicator signals will turn out to be errors of the newbies and the indicator itself.

It is difficult to rely on indicators in such conditions. This is especially risky in the markets of unpopular low-capitalization currencies, where a couple of erroneous newbies can arrange such chaos on charts that the most experienced traders will not understand it.

Cryptomarket, meanwhile, is profitable for customers, and it is unwise to miss the benefits of the unreliability of indicators. The participant remains to apply the achievements of colleagues from traditional markets, only with greater caution.

So, incomprehensible “indicator” situations on the crypto-market are more reasonable to wait. And in understandable, respectively, to use the experience and mathematics in full measure and then, I think, they will give a positive result.