In the world of cryptocurrency trading, there are a few key strategies users tend to follow. These strategies usually rely on looking for specific patterns and determining whether or not they can be lined up to the current and past price movements of specific cryptocurrencies. The following technical indicators are quite popular and for the foundation of technical analysis in every industry.
#4 Relative Strength Index (RSI)
Most people who have looked at a cryptocurrency chart will know the term RSI. Invented by J. Welles Wilder in 1978, this term pertains to the Relative Strength Index, which is used to determine the strength of current price trend and points of potential reversal. There are many ways to customize the RSI parameters traders rely on. Changing the period, for example, is something cryptocurrency traders often tend to experiment with first and foremost.
It is also worth pointing out the RSI is often used to determine if a market is overbought (above 70) or oversold (below 30). Albeit that is still not a full indicator of how markets will evolve over time, the RSI is usually a good indicator as to whether or not traders should get involved in specific markets first and foremost. It is just one of many patterns traders can rely on, but it is certainly one of the most important models.
#3 Fibonacci Retracements
Determining the proverbial levels of resistance and support in the financial world is usually done by looking at Fibonacci Retracements. It is not clear who first applied the Fibonacci ratios to stock price analysis, but the concept has been developed around the 1930s.
It is derived from the Fibonacci number sequence, and it can let traders determine potential targets to place strategic buy or sell orders alike. Three key levels are 38.2%, 50%, and 61.8% , which are often considered to be the main resistance levels for financial markets.
Although it sounds like a new type of burger at McDonalds, the MACD is a Moving Average Convergence and Divergence Indicator. It was invented in the 1970s by Gerald Appel, and is a great pattern to determine histograms for specific markets, which can tell a lot about how markets will evolve in the short-term. It is another indicator usually relied on to determine overbought and oversold states of markets. Strong signals are referred to as bullish divergence and bearish divergence.
#1 Bollinger Bands
One of cryptocurrency traders’ most favorite tool is the Bollinger Bands pattern. This one is a relatively new indicator invented by John Bollinger in 1983. It is used to determine the range and rate of price volatility, which is no unnecessary luxury in the crypto world. These markets are notoriously volatile, and using Bollinger Bands can put a lot of traders’ minds at ease. It also shows how much all financial markets fluctuate first and foremost, which is an aspect not just native to cryptocurrency either.
There are many purposes to Bollinger Bands, ranging from rising and falling price trends to volatility and sudden price changes. Depending on a trader’s expertise, there are simple and strong signals, including the infamous “double bottom” and “double top” signals. It is one of the more valuable indicator to use as novice traders, although advanced traders rely on Bollinger Bands fairly often as well.
Now that you have familiarized yourself with these technical indicators, check out this chart for an example of how each looks: