Keeping up with the ever-changing chart patterns in crypto trading is essential if you want to have the edge over other traders. But there aren’t any indicators that fit all markets perfectly. You want to stay on the right side of the trends and stay alert as the trend changes.
So, how can you do that when there is no specific key price indicator that tells you how the trends change? A simple solution would be to use a combination of different price indicators. But using too many indicators can have the opposite effect and adversely influence your decisions.
To avoid such situations, you should stick to using only a few types of key indicators so you can make decisions consistently. Pro traders tend to use only a few indicators to analyze price charts, especially in crypto trading.
But then again, there aren’t any dead set rules that bind you to use specific indicators. However, this article will discuss the key price indicators that have proved to be the most useful to crypto traders.
Key Price Indicators for Crypto Trading
Here are two key price indicators that every crypto trader should know:
Moving Averages
Unlike other key price indicators that forecast trends, moving averages give delayed information after the price has already moved in a particular direction. It is the main reason why moving averages are sometimes referred to as lagging indicators.
Generally, moving averages are used in a time frame of 20, 50, and 200 periods. These periods are considered the most favorable by most traders. However, moving averages of 5 and 10 periods are also used by short-term traders. But it is important to note here that these short-term periods move around frequently, making them unreliable and unsuitable for all traders.
Moving averages are divided into four main categories. These are:
- Simple moving averages
- Exponential moving averages
- Smoothed moving averages
- Weighted moving averages
Out of all the four types, simple and exponential moving averages are the most widely used. In the case of simple moving averages, equal weightage is given to all the price data. That’s why simple moving averages react slowly to fluctuating prices. Generally, simple moving averages are used to analyze trends over longer periods as the price does not change quickly.
On the other hand, exponential moving averages tend to react relatively faster than simple moving averages. In this case, more weightage is given to more recent price data, which leads to more immediate results. The exponential moving averages are preferred for short-term periods of 10 and 20 because of how fast they react to the price fluctuations.
Relative Strength Index
If you want to regularly capture all the price changes, you should use a relative strength index, also known as RSI. The RSI is a momentum key price indicator that acts as an oscillator. It ranges between the values of 0 to 100.
To understand how the trends are changing, a value falling below 30 is termed “oversold.” On the contrary, a value that goes over 70 is termed “overbought.” Ideally, a relative strength index should only be used in range-bound markets. During the trending phase, RSI can give false signals, leading to bad decisions.
So, if they tend to give false signals, why should you use them, even in range-bound markets? It’s because, in range-bound markets, the prices do not deviate from average trends for extended periods.
The most widely used time frame for the relative strength index is the 14-period. But if you are a long-term trader, you may use 21 and even 30 periods RSI. On the other hand, short-term traders prefer to use 5 and 7 period RSI.
The relative strength index is perfect for letting traders know when a trend reversal is about to take place. This helps traders make wise decisions instead of buying or selling crypto in haste when things go out of hand.
Example of a Range-Bound Market in Crypto Trading
In range-bound markets, the moving averages do not deviate in either direction (up or down) for a prolonged period. It is difficult to spot changes in the price because there is no specific direction the trends move toward.
A prominent example of a range-bound market is Bitcoin, when it remained stuck in one place from August 1st, 2020, till October 20th, 2020. The moving averages remained flat during this timeframe. However, on October 21st, 2020, the price skyrocketed and went above the range, pushing the RSI into the overbought region.
There is no way to tell how long the trend will remain regarding downward trends in the crypto market. Unlike upward trends, downward trends are difficult to follow. They might end up creating a bearish market or swiftly move after seeing a sharp decline in prices.
One of the most prominent signs of trend reversals is when the RSI stays at the lower tops even when the price of crypto increases. But then again, there is no dead-set rule that would say that this indication will always lead to bearish markets. However, if you use a combination of price actions with such indications, you can avoid disastrous outcomes in the long haul.
Conclusion
Out of all the key price indicators in the crypto trading market, moving averages and relative strength index or RSI are the two leading indicators you can’t overlook. They both help in identifying changes in the prices over specific intervals. Of course, not every indication you see will be foolproof.
Reading and analyzing the charts comes with experience. If you are a beginner, you should use these two indicators. If they don’t seem favorable to you, you can experiment with other key price indicators. However, there is a high chance that you’ll find both these indicators to be helpful when identifying bull and bear markets. Remember, the more you practice using these two indicators, the better you will get at reading trends in general.
The post The 2 Key Price Indicators Every Crypto Trader Should Know appeared first on Fat Pig Signals.
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