What are indicators?
Using price behavior models, indicators can predict market behavior and inform traders. This information can then be used to create trading strategies. In addition, trading indicators are used to track news and changes in other markets that may affect the price.
Which technical analysis indicators work best?
Technical analysis is a method of predicting the price movement of an asset based on previous market prices and the volume of trading activity on the asset. It is very important to be careful when choosing a stock indicator, as not all of them are suitable for technical analysis.
Moving Average Convergence and Divergence (MACD), Relative Strength Index (RSI), Bollinger Bands, and Oscillating Balance Volume (OBV) are a few indicators that are ideal for technical research. In this essay, we will take a look at each of them.
Moving Average Convergence Divergence (MACD)
MACD is used to assess the strength of a trend. This indicator is calculated as follows:
12-day EMA (closing price) – 26-day EMA (exponential moving average)Positive MACD values indicate a growing momentum. A bullish crossover occurs when the MACD moves upward and crosses the signal line (as shown in the image below). This is usually an ideal time to buy.
A negative momentum indicates a negative MACD. A bearish crossover occurs when the MACD goes down, crosses the signal line and rises above the signal line. In this situation, the asset should be sold.
An indicator called Bollinger Bands is used to assess the price movement of an asset within the bands. As the price changes, the distance between the upper and lower bands also changes. If the price of an asset goes beyond the upper and lower bands, it is likely that a price reversal will soon occur if the price of the asset goes beyond the upper and lower bands. The indicator data can be interpreted as follows:
- A simple 20-day moving average (SMA) is a middle band.
- The upper band is the SMA for 20 days plus (the standard deviation of the price for 20 days divided by 2).
- Lower band – SMA for 20 days – (standard deviation of the price for 20 days divided by two).
Relative strength index ( RSI )
The RSI is used to assess the strength or weakness of an asset based on recent price fluctuations. This indicator can be used to determine whether a product is overbought or oversold. This indicator is calculated as follows:
RSI = 100-100 / (1 + RS)
RS is the ratio of the average price change upward or downward.
The typical number of periods used is 14, but the trader chooses the exact number.
A value of less than 30 often means that the item has been resold. If the value is greater than 70, the product is likely to have been overbought.
On-Balance Volume (OBV)
OBV is an indicator that uses the volume flow of an asset to predict changes in the price of a digital currency and determine the strength of a signal to buy or sell an asset. It is used as a cumulative indicator. This means that:
- If the price of an asset increases, the volume for that day is added to the total OBV.
- If the asset price falls, the volume for that day is subtracted from the total OBV.
- If the price does not change, no transactions are executed.
The idea is actually quite simple: if there is a higher high that is not in a resistance zone, it means that there is positive trading volume pressure and the price is likely to rise. If there is a lower high, the opposite is true (unless the price is in the support zone). This situation means that the volume pressure is negative at the moment and the price of the asset is likely to fall.
We have mentioned only a small number of reliable testimonies. There are undoubtedly many more. It is important to try as many different variations of cryptocurrency trading indicators as possible to determine which one best suits your needs as a trader for a quality analysis of a trading instrument.