2 Key Price Indicators Every Crypto Trader Should Be Aware Of
Looking at a crypto price chart can seem like you’re looking at a screen of gibberish if you don’t know the basics of crypto trading. There are so many price indicators and ways to trade cryptocurrency that no format is universal.
Knowing the best price indicators will allow you to make informed decisions about trading your coins. This article will look into the meaning of price indicators and two well-known indicators useful for beginners and experts alike.
What Are Price Indicators?
Price indicators are the basis of technical analysis and underlying principles of price action to determine its trend, whether its run is bullish, bearish, or in a range. Price indicators have been around since trading began, and they constantly evolved to stay relevant to the present age, hence why they are used in cryptocurrency.
Trading cryptocurrencies can be difficult for traders due to their extreme volatility. It is hard to predict where crypto prices will go. A coin could be on a 30% upsurge, then a 50% downward spiral. However, with these price indicators, traders can better understand when its price would go up or down.
It is worth noting that there are no general price indicators for crypto trading. Your trading style will largely determine which one suits your taste best.
Moving Averages
Moving Averages are indicators that follow the price trend. They are also known as lagging indicators because they only give results after price movement. These indicators are a good option for both short-term and long-term traders.
Traders mostly use moving averages of 20, 40 and 200 periods for long-term trading and 5–10 period moving averages for short-term trading. However, it is not a fixed formula. Prices fluctuate, and they are not the best option for all situations. There are four types of moving averages:
- Exponential Moving Averages
- Simple Moving Averages
- Smoothed Moving Averages
- Weighted Moving Averages.
The most widely used moving averages are: simple and exponential.
Exponential Moving averages react quickly to changes in price. Recent price trends have a big impact on calculating the exponential moving average.
On the other hand, Simple moving Averages give equal reactions to price changes. It tends to act slowly to price changes. As EMAs quickly detect price changes, they are used for shorter periods; 10–20, while simple moving averages could be around 20–50-time frames.
General cryptocurrency prices don’t change quickly; this is why EMA’s and SMAs are used for their specific purposes.
Relative Strength Index
RSI is a momentum indicator that tracks price movement with an oscillator ranging from 0 to 100. The general belief when using an RSI is that it gives a value below 30 or above 70 when there is a trend period. That is, the value is either oversold or underbought.
Therefore, RSI best fits a regulated market with no significant trends. Short period RSI time frames are used by short-term traders; they could range between 5–7 RSI periods.
In contrast, long-term traders use long period RSI, around 30–70 periods RSI. As a rule of thumb, the 14 period RSI is the most commonly used Relative Strength Index.
RSI is also used to detect divergences in prices. RSI notifies traders in the instance of a trend reversal; it alerts traders on the price trends. That is, whether it is being bought more (closer to 70) or sold more (closer to 30)
https://mobile.twitter.com/JSE_Challenge/status/1285137526114615300
Examples of A Defined Market
Source: TradingView — Daily chart BTC/USDT
The prices in a defined market don’t go through radical price changes. Their moving averages overlap and move in a range. In the diagram above, the price of Bitcoin didn’t leave the range of high and low. There are no significant price hikes or downward spirals. This type of market has no direction and is difficult to trade.
Upward Trend
Source: TradingView — Daily chart BTC/USDT
Meanwhile, in the diagram above, the price of Bitcoin was moving in a range ending in October 2020. On October 21, 2021, the price started a bullish upward rally which made its RSI go overbought. The price also went on an Exponential Moving average, reaching the 20EMAs before stabilizing at 50SMAs. This trend went on for a long time, all through November, December, and beyond.
Downward Spirals
Bullish trends tend to maintain their upward position for a long period. However, bearish trends in price behavior are always turbulent. It could maintain its downfall or make a sharp fall and rise again.
Source: TradingView — Daily Chart
In the diagram above, DOT started with an uptrend, stabilized at a range, amid which there was a negative divergence warning. Then it started a decline on the 19th of May. The RSI became negative while the moving averages started coming down.
No Method Is the Yardstick
https://mobile.twitter.com/SJosephBurns/status/1427594884115058718
As shown in the tweet above, there are many price indicators available. Your preferences and investment goals will determine the one that you, the investor, choose for your price reading.
With that said, Moving Averages and RSI are good price indicators to start off with as a newbie. However, you should also know many other underlying trends show a clear view of where the market is going. It will force you not to trade against the market, thereby, avoiding huge losses.
These are just basic price indicators to read the cryptocurrency market. It doesn’t mean that either are the key behind success or failure when trading. Many other factors and trends affect price direction. New investors and experts alike should get their research right and fork out a strategy that best works for their trading requirements.
