Introduction to Technical Indicators
In this technical analysis (TA) guide for cryptocurrencies, we will introduce you to technical indicators, explain why you should use them, and provide resources for learning more about hundreds of them.
Technical analysis has three major components:
- Charting lines
- Indicators and Oscillators
Each of these components is important for overall success when trading cryptos. Technical indicators are tools utilized to measure and interpret market behavior. They are typically used by traders and investors to get familiar with new price trends (up, down, or sideways) and trade in the correct time. Technical indicators use mathematical calculations of historical prices and trading volumes of a trading pair to predict the market trend.
Here are a couple of examples of technical indicators:
The picture above shows two popular technical indicators: Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI). Understanding the mechanics (and mathematics) behind the indicators is desirable, but it is not a requirement to use them, as everything is presented visually, which is easy to keep track of. So, all you need to know is how to use them, not how do they work.
Why Should You Use Technical Indicators?
The purpose of the indicators lies in the following:
Prediction – They are used to predict where are the future prices headed.
Confirmation – In order to confirm a price movement or a particular trend and complement your TA findings.
Alert – It can be used to alert traders of the market’s momentum, allowing them to set up trades on time.
The number one users of technical indicators are active day traders, as they are built to evaluate short-term price movements. But even if you are aiming to trade on a long-term basis, indicators can be used to identify entry and exit points.
Technical Indicator Types
There are two types of technical indicators:
Overlays – These are indicators that are displayed over the main price chart
Oscillators – These are indicators that “oscillate” between two limits, used to determine the strength and momentum of the trend.
Which Indicators to Use?
There are tens or even hundreds of indicators that can be used to analyze a particular cryptocurrency pair. In order to know which ones are most suitable for your strategy, we have selected a number of resources you can use to learn more about indicators.
The resources to get started:
And if this seems too complicated for you, don’t worry – there are solutions such as Gunbot which allow automated execution of trading strategies. Professional traders and analysts made Gunbot, offering 32 different strategies for trading and support for the most popular crypto exchanges.
Stay tuned for the new guides! And if you have any questions, feel free to reach out. Our team is always happy to help.