Crypto Trading Indicators: Beginner’s Guide
In BonkBOT’s guide to the best indicators for crypto trading, you’ll explore the best crypto technical analysis for beginners and come away feeling ready to make informed trades based on more than just gut feeling.
What is Crypto Technical Analysis?
Technical Analysis, often shortened to TA, involves analyzing historical price movements, mathematical indicators, and previous trading volumes (among other important metrics) to predict future price behavior.
It has become a critical aspect of trading in the crypto markets, where higher volatility and risk emphasize the need to closely analyze price charts and trade cautiously.
Many traders are looking for opportunities to buy low and sell high, using TA to spot undervalued investment opportunities.
What’s important to note, if you’re new to trading, is that every trader has their own approach, their own beliefs, and their own interpretations. Until now, nobody has ever predicted the markets with 100% accuracy, which is what makes TA so interesting and individual.
What Are Crypto Trading Indicators?
To perform technical analysis, traders must leverage a wide variety of indicators, which include “Moving Averages”, “Relative Strength Index (RSI)”, and “Fibonacci Retracements”, to name a few examples.
These indicators help to identify different trends and spot potential entry or exit points for trades.
In short, crypto trading indicators are the data sources that help traders decide whether their Bitcoin, Ethereum, or any other token is likely to go up or down.
In the next section of this guide, we will explore ten different indicators.
Before we do that, it’s important to note that not all indicators reach the same conclusion.
Some indicators will give data about a coin or token’s longer-term profitability, while others can do a good job of identifying short-term problems.
Every trader looks at their own favorite indicators, tools, and strategies to perform their preferred method of technical analysis.
Soon, you will too.
Top Crypto Trading Indicators For Beginners
Support and Resistance Levels
Support Level: This is the safety net for a coin’s price, a level where the buying interest is strong enough to prevent the price falling any further.
It acts like a trampoline, because when a coin falls to this price, it usually bounces back up.
Resistance Level: On the flip side, the resistance level is the ceiling that the price struggles to break through. Selling interest typically decreases at this level and the price drops back down.
By studying the support and resistance levels, even beginners can see the opportunity to trade as the price swings each way.
Candlestick Charts
Candlesticks are the visual representation of price over a specific time period on typical trading charts.
Each candlestick tells the trader four things:
Open: The price at the start of the time period
Close: the price at the end of the time period
High: The highest price during that time period
Low: The lowest price during that time period
Why are they called candlesticks?
That’s because they look like candles, with a body and wick.
The body is the range between the open and close prices. If the close price is higher than the open price, the body is usually green (but sometimes white), because the price went up.
Alternatively, if the close price is lower, the body is red (or sometimes black), to indicate the price going down.
The wicks are thin lines above and below the body, showing the high and low prices during the selected time period.
Beginner traders can quickly learn to read candlesticks and identify patterns and trends to understand the emotion and behavior of a coin.
Moving Averages (MA)
A moving average is a statistical calculation for analyzing data over a specific period. In crypto, it’s used to help identify trends and understand whether the market is moving sideways or directionally.
There are several types of MA, including:
Simple Moving Average: SMA is the classic approach that uses the average price of a cryptocurrency over a fixed period to gain perspective.
Exponential Moving Average: EMA gives more weight to recent price data to help traders react more quickly to price changes.
Weighted Moving Average: This assigns different weights to data points, also emphasizing recent values more than older ones, though with a slightly different formula to EMA.
Averages help to identify potential support and resistance levels, spot trends, or generate buy or sell signals.
Moving Average Convergence Divergence (MACD)
MACD shows the relationship between two moving averages (see above) of a cryptocurrency’s price.
It follows trends and momentum to identify potential buy and sell opportunities or momentum shifts.
It can be a little tricky as a method of crypto technical analysis for beginners, but is more helpful when used alongside other indicators.
Relative Strength Index (RSI)
RSI is a momentum oscillator, which means it measures the speed, health, and change of price movements with a score between 0 and 100.
Technical analysts find that it can help to identify potential reversal points in the market or to see whether a coin is overbought (RSI over 70), or oversold (RSI under 30).
Traders may also look at the divergence between RSI and price action. If the price is making new highs by the RSI isn’t, it could mean the momentum is weakening, for example.
Trend Lines
Trend lines are like invisible strings that hold the market together, guiding traders through the ups and downs of price movements!
They are straight lines drawn on a chart that connect significant price points, helping to visualize the direction of the market.
As a beginner, these lines can be one of the best indicators for crypto trading, offering you a simple and useful aid while you learn more advanced technical analysis methods.
They’ll help you to identify potential support or resistance levels and spot ideal entry or exit points.
Just remember, they’re not foolproof, there’s always room for a plot twist!
On-balance Volume (OBV)
OBV tracks the volumes of trades to help see whether the buying or selling pressure is dominating the market.
Traders can gauge the strength of price movements by using the OBV formula to extrapolate different volume-based data.
While some may see OBV as one of the best crypto indicators for crypto trading, it is best used alongside other indicators and not on its own.
Fibonacci Retracement
Fibonacci Retracement leverages the Fibonacci sequence, where each subsequent number is the sum of the two before it (0, 1, 1, 2, 3, 5, 8, 13, 21, ...).
Using Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, and 100%), traders can identify potential reversal levels and draw them in a price chart to navigate upcoming price actions.
Don’t worry if this seems too complex or advanced - once you reach this level of technical analysis, it will make a lot more sense and you can find a dedicated guide to study and apply it.
Bollinger Bands
Developed by John Bollinger, his three bands help traders to understand volatility and potential price levels.
Middle Band: This is the simple moving average of the price, usually set to 20 periods
Upper Band: This is the middle band plus two standard deviations which make it act like a ceiling, indicating overbought conditions
Lower Band: This is the middle band minus two standard deviations, making it serve as a floor that indicates oversold conditions.
These bands help to identify volatility, bouncing, breakouts, limitations, and much more.
When you’re confident with them, they can actually be quite fun to use!
Stochastic Oscillator
George Lane developed the Stochastic Oscillator to help traders gauge whether a cryptocurrency is feeling overbought or oversold.
This momentum indicator compares a particular closing price of an asset to a range of its prices over a specific period. It then draws lines to help analysts ask questions and find answers about the coin, particularly about when to buy or sell.
While helpful, the Stochastic Oscillator is not perfect, and can produce false signals during strong trending markets. It’s best used to guide you in the right direction.
Final Words on Coin Trading Indications
So, which are the best crypto indicators for trading?
Well, in truth, the best crypto indicators are the ones that serve you well.
Trading is a very personal activity and some people can become dependent on particular indicators and methods for technical analysis - that’s because they have found what works best for them.
Now, it’s your turn to find what works best for you, but don’t stop at your first victory - in the world of crypto, continuous learning is crucial.