Crypto trading indicators (or technical indicators) are a powerful tool for successful and profitable cryptocurrency trading. If you understand them and know how to use them, they can help you spot important price movements and predict market trends.
They are calculated out of historic price and volume changes of a given cryptocurrency. Crypto trading indicators are offered by various charting platforms (these are further explained explained here).
Crypto Trading Indicators: which ones to use?
Three of the most of the most common indicators used by crypto traders are MACD, RSI and the Ichimoku cloud. Not only fairly easy to interpret, together they also give a varied set of information.
Many people also heavily rely on the Stochastic RSI. It is similar to RSI but gives more signals. I usually use both of them. A very useful but a bit more complex indicator is also ADX, an advanced tool for discerning the strength of trends.
However, relying solely on any of these crypto trading indicators is risky. A trader should always look for confluence – getting multiple conformations for any trading decision.
MACD indicator for crypto
MACD or Moving Average Convergence Divergence is useful for determining trend and momentum.
Let’s keep things simple. If you use either Tradingview or Coinigy charting platforms, this is how it goes. We get the buy signal when the blue line on the indicator crosses above red line. Vice versa, blue line going below the red line gives us a sell signal. You can also look at the histogram. When histogram crosses zero line and goes above, we can expect the price to rise. When the histogram goes to the negative values, we can expect the price to drop.
The default setup of input data on this indicator is 12/26/9. However, I use 3/10/14, as this gives this crypto trading indicator a much better accuracy – at least on the cryptocurrency market.
Because MACD uses moving averages, which lag price, the buy and sell signals can come late. If you open your trades on these signal, this can seriously affect your risk to reward ratio. Also, this indicator has a tendency to give false signals. The MACD is thus very useful to see whether you that your decision to enter a trade was right – or that the momentum is turning and that you should think of abandoning ship.
RSI indicator for crypto
Traders use RSI or Relative Strength Index to determine when a coin is oversold or overbought.
The RSI oscillates between zero and 100. Traditionally, when the line is above 70, a coin is overbought. Anything below 30 means the coin is oversold. Therefore, when RSI reaches the values above 70 or below 30, this may signal a trend reversal on the horizon. You get a further conformation when the line turns and re-enters the 30-70 area.
This is a very simple but also highly effective. However, a coin can stay overbought or oversold for a long time. So, one of the most useful ways to use RSI is to search for divergences. If you spot divergences when the coin is in either oversold or overbought condition, this is a very powerful signal.
Crypto trading: Ichimoku cloud
Ichimoku cloud may seem like a complicated indicator, but once explained, you will see it’s pretty easy to use. It is a versatile indicator that defines support and resistance areas, momentum and trend directions. It can also be used to get trading signals.
Ichimoku Trend direction
When price is above the cloud, the price is bullish. When the price is below the cloud, the price is bearish
Support and resistance areas:
When price is above the cloud, the cloud itself serves as support and when the price is below the cloud, the cloud serves as resistance. If price enters into the cloud, the upper and lower area may also act as support or resistance.
Once again, you can tweak the input data for Ichimoku to achieve better accuracy for crypto markets. I found the 20/60/120/30 settings to work really well.
A decision to enter a trade (or to let it go) should never be based on just one confirmation. When MACD line crosses the signal line or when we see the RSI value go to extreme, we never just blindly buy or sell the currency.
Always look for confluence!
Trading doesn’t behave in a strict logic. You can never say, if A happens then B is going to happen. We can, on the other hand say, if A happens, most likely B is going to happen as well.
However, if event A means that event B is likely going to happen and event C also means that B is likely going to happen, then the chances are doubled. When you get both events A and C happening at the same time, then you can claim with even greater probability, that B is going to happen.
However, even if one or even two indicators give you a proper signal, this is not enough. Chart patterns also need to be on point. Finally – and this is extremely important – proper time frames for indicators need to be used. The bigger the timeframes, the more reliable the indicators are. A rule of thumb would be to handle your trading decisions with time frames of 4h or above.
Crypto Indicators Explained
All of this is explained in much more depth in our educational course. There we show how to use indicators on actual coins and in actual trading situations.
Furthermore, you can also see how we use the indicators in our market tips blog, where we regularly write about where the market may be heading.