It takes an experienced trader to trade cryptocurrency charts naked (without indicators). If you are a beginner, you need to add some indicators on your charts. These indicators will tell you where to enter a trade, where to cut your loss and where to take profits. However, indicators shouldn’t be used as a crutch but as the name suggests, they should help indicate the price action.
Here are the top 5 important indicators when looking at cryptocurrency charts that every trader needs to know:
Relative strength index (RSI)
The RSI is an indicator that measures the change and speed of price movements. It lets you know when a crypto has been overbought or when it has been oversold. The RSI is a great indicator because it can be used to measure all price oscillations thereby relieving you of the need of adding other different indicators to do that.
This indicator lets you know how much of the cryptocurrency was traded for a specified timeframe. Most exchanges have a default volume indicator but they also have other volume-based indicators like the Volume By Price and the On Balance Volume (OBV). Volume is the most important tool for making a trade because it will tell you what kind of price action you should expect. Once you have identified a trend on the cryptocurrency charts, you need to check the volume to see if it confirms the trend.
The simple moving average is a mean value of closing prices on a crypto for a given timeframe. For instance, a 30-Day MA means the prices have been calculated over the period of 30 days. This indicator is a great way of guestimating where the price of the crypto is bound to go. However, keep in mind that some other factors like major news could cause the prices to spike. Equally, they may pullback beyond the normal pattern seen on the SMA indicator.
This is another popular indicator, especially among traders. A market depth is usually a form of a chart that is color-coded with one side denoting the cryptos available for purchase and the other denoting the volume available for sale. Market depth is important because you can use it to analyze the supply and demand dynamics of the cryptocurrency you are trading.
Moving Average Converge Divergence
The moving average convergence divergence (MACD) is popular with both stock and crypto traders. What makes MACD so powerful is it actually predicts trends before they happen. In addition to trend prediction, MACD also indicates how strong a given trend is. MACD can, therefore, help day traders know exactly where to enter a trade and also predict for them where to exit the trade before the price action plays out.
The above indicators are not the only indicators available but they are the most commonly used. If you are just starting out in cryptocurrency, you may want to take some time to learn these. They are all useful indicators for interpreting cryptocurrency charts. These indicators will help you know when not to buy a crypto and when to sell it thereby maximizing your profits while minimizing loses.
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