Trading digital currencies is said to be a combination of luck and skill. However, most of the experienced traders out there who either managed to survive one of two crypto winters, or have earned a reputation as “lucky” ones, will say that trading cryptocurrencies is more of an art. The abundance of indicators, charts, tips, tricks and various instruments used for trading on the crypto market is enough to make a novice’s head spin. The mere factor that Bitcoin price indices follow the supply and demand curve in historical relation to classical economic theory is proof that the crypto market behaves in predictable patterns and skillful, keen traders can rely on a handy list of crypto buy indicators when placing orders
In fact, the crypto market is a mirror reflection of the conventional stock trading market, as cryptocurrencies follow the pattern of stocks and bonds in their price dynamics. But in order to be able to catch the trend and stay abreast of the potential movements of a cryptocurrency’s price, traders rely on a proven and reliable set of tools.
Cryptocurrency prices are dependent on a number of factors. Though supply and demand relations are stated to be the main driving factors for the price of any cryptocurrency, basic economics dictates that the supply and demand curve itself is dependent on a series of factors, both intra-market and external.
Most cryptocurrency prices are related to the news background surrounding the given asset. Successful partnerships, development traction, the launch of updates or new products, and any other positive event in the roadmap of a token or coin are perceived as driving factors for its price, since they inspire confidence in the viability of the project and its currency. It is no secret to anyone that the vast majority of cryptocurrencies, Bitcoin included, are speculative by nature and a meager minority of community members actually use them for their core technical purposes inside their designated services and platforms. Most cryptocurrencies are acquired solely for the possibility of earning on their positive price valuation.
Other factors that can influence a cryptocurrency’s price in the negative sense are regulatory restrictions, hacks, scam accusations, bankruptcies, general market downtrends, legal investigations, blockchain forks, community disputes, and many others. All external factors that cast a shadow of doubt on the viability of a project, even a simple tweet from a prominent person in the media space, will impact the price.
In order to be ahead of the curve and trade in the green, experienced traders rely on news aggregators for instantly reacting to positive and negative dynamics. However, technical indicators are the key to trading and the following is a list of the most important and reliable ones.
This instrument is the so-called “bread and butter” tool of any trader. It is largely used due to its simplicity and straightforward information output as a broader picture of the market. The MACD is designed to follow trends and indicate the potential behavior of an asset in the short term in price relations. The line it draws gives an indication of where the price trend could be moving and shows four key elements – the MACD line itself, the zero line, the histogram, and the signal line.
The technical aspects of its use allow for determining the sensitivity of the trend and the way the price is likely to behave within a certain timeframe. By and large, the MACD gives a clear insight into whether the market is headed into a bearish or a bullish trend. Bullish is when the MACD is located right above the signal line, and bearish when the signal line rises well above the MACD line.
This indicator is a combination of trend analysis with the analysis of instant price momentum, allowing traders to confidently determine whether a digital currency is moving towards a bullish or bearish region with a relatively high degree of accuracy. The MYC relies on the trendline, which allows traders to see if a signal for opening a long position will become available when the price of an asset starts rising. The opposite will be true for a short signal.
Another core indicator used by traders the world over, the RSI is designed to help identify whether the price of an asset is within the range of its real value, or far from it. If the price is above the real value, then it is possible to start reaping the profits. The market will eventually correct towards the real value of asset, declining the bullish market, so it is necessary to catch the trend in time and make it to collect the profits by selling off the asset.
The RSI is best used for identifying when it is possible to enter the market at the highest possible gains by showing whether the asset is overbought or undervalued. A rather complicated formula is used to determine that, but the automated systems of trading terminals handle that, producing a convenient line on the trading chart.
Another constant of every trader is the Bollinger Band – an indicator that was created for determining the level of market volatility. And since high volatility is the essence of trading, seeing the bands move between the high and low extremes of market averages is the essence of the given indicator. The concept is rather simple – if the bands move away from the middle, then volatility is high, and if they move towards it, then volatility is low.
A lagging indicator that is basically a chart of previous price history that shows how an asset behaved during the previous days. Traders are left to themselves to determine trends when relying on the Moving Average, by taking into account the bigger picture of market price history. A major upside of the Moving Average is that it can be used for both short and long trading, showing upward moving slopes for bullish markets, and bearish ones on downward slides.
Market analysis is the key to determining where the price of a digital asset is moving. Traders spend hours staring at charts, analyzing the potential movement of lines by combining multiple readouts from various indicators. No single indicator is ever a reliable tool that can serve as grounds for trading an asset. Only the combination of data provided by several indicators can act as reliable forecasting of trends and possible price dynamics.
It is important to note that not a single indicator is ever a surefire way of determining the price or trend of a digital currency. All cryptocurrencies are speculative by nature and highly volatile, making any trading efforts largely a matter of quick reaction timing and chance. There is never certainty in the success of trading, even if the indicators are showing positive results on forecasts.