The best cryptocurrency indicator has been a discussion for a very long time now. It’s time to break down some of the best tools for your trading.
If you are going to use indicators for your crypto day trading or swing trading, you should know how they work.
In this review, I’m going to go through the indicators that generate the best results for short-term trading and long-term trading.
Today you will learn more about these indicators:
- Moving Average
- Fear & Greed Index
- Bitcoin Short Ratio
Buy & Sell signals
You need to be able to tell if your indicator is giving you a positive or negative signal, otherwise, you are trading blind.
I will give examples to each one and explain how you can generate your own buy and sell signals.
Some of them are better for trending markets and some are better in a choppy trading range.
Cryptocurrency indicators are not different from traditional ones, they work the same way. However, you must know how to use each one for the best results.
Some of these might be new tools for you, in that case, keep reading to learn more about for which setup I use them.
Below you will find a comparison table of cryptocurrency exchanges where you can find all of these indicators are more.
These exchanges are equipped with developed trading interfaces to execute good trades.
I recommend that you read through the whole review before you choose an exchange. However, if you are in a hurry, check the comparison table below.
Does technical analysis work on Cryptocurrency?
The way technical analysis should be applied to cryptocurrencies is roughly the same as for any other tradable asset.
When you use charts to analyze your coin you need to know what indicator to use for each scenario.
For example, if the market is trending, you are better off using Volume and Moving Average indicators.
These tools will help you tell which way the market is heading.
If you were to apply RSI or MACD indicators while the market is in a bull trend, you will get many misleading sell signals that are actually perfect bull breakout signals.
The same thing goes for a choppy trading range.
If you are trying to apply moving averages to a trading range you will most certainly sell bottoms and buy the tops.
Just when you get the signal, the market will start turning back into the range again.
This goes for all cryptocurrencies.
RSI stands for Relative Strength Index and this is a momentum-based indicator that will help you out during day trades or shorter swing trades.
The reason it doesn’t work well for longer-term trades is that it’s made to calculate ranges in the market.
Once the market is out of the range you need to use other indicators for trending signals.
I will give you a good example of where RSI is perfect to use for cryptocurrencies.
Here is a screenshot of recent trading activity in Bitcoin while using RSI.
As you can see, at the beginning of the trading day, the market stayed in a range and RSI gave 9 positive readings that could generate intraday profits.
Later during the evening, the market started to turn downwards and all the buy signals become losers in the down-trending market.
This is a perfect example of why you can’t rely on RSI in a trending market.
The first step is to analyze if the market is in a range or a positive/negative trend.
If you can do that, then you can start applying the right tools.
MACD is another momentum indicator that is best suited to use while the market is rather choppy with no direction.
It’s also very good at reading larger trading ranges where you want to know where the market might turn back down.
It will give you clear buy and sell signals, as long as you have identified that the market is in a range.
Here is another snapshot of Bitcoin trading.
In this case, we had a positive signal in a trading range.
The way MACD is used is to look for higher lows in both the chart and indicator.
The buy signal comes when the histogram turns positive and starts moving higher.
This is the time to place your buy order and a stop-loss order under the previous bottom.
MACD works the same way for sell signals.
Make sure that the histogram has started to turn negative before you enter the market.
You want to use moving averages for cryptocurrencies that are trending.
Once you have identified a trending coin you then want to apply your preferred MA.
Here is a Bitcoin trade where moving averages worked out perfectly to identify the trend and also staying in the trade.
This is a longer time frame trade in Bitcoin and you can see how well the 200 Moving average captured this trend.
First, the market showed support at the 200 MA, and then when this support was held, the market took off.
This is your entry signal to go long.
If you traded this right you could have held the trade for a couple of weeks and then exited when the market broke the 200 MA.
This break was the perfect sell signal to this trade.
Remember, moving averages are best suited for trending markets, and don’t be afraid to hold on to the trade if the indicator tells you so.
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Volume is one of those indicators that can be used for both long-term and short-term trading in cryptocurrencies
It has more of a leading feature as it can show a build-up or a slowdown in a market.
Another good reason to use volume is to find confirmation for your ideas.
For example, if a market looks like it’s going to break lower or higher you want to see increased volume when the market makes the breakout.
The reason you want to see increased volume, in this case, is for two reasons.
- Many traders have the same opinion.
- A lot of traders were on the wrong side of the market.
This is for markets that are breaking up or down, but what about a trending market?
When a market is trending, the volume should be used differently.
You want to see some increased volume on the continuation moves.
Let’s say the market is in a bull trend and you want to know if the market will keep going up.
First of all, you want to see decreased volume on the “tests”.
A test is a simple pull-back, which can last from one day up two-three weeks.
During this pullback, you want to see that the sell-off that takes the market lower is done on decreased volume.
This is good for two reasons:
- Fewer people are willing to sell.
- The market sentiment is positive and strong.
That’s good because you know that very few traders are getting stopped out or shaken out by the market volatility.
Also, you know that traders have a positive bias overall.
So there is a high probability that traders will keep buying.
Here is a great example of how to use Volume when trading cryptocurrencies.
Take a look at a negative break in Ethereum with increased volume.
This explains very well how volume can be used to get confirmation on your setups.
Without this volume spike, this setup would not be as attractive.
As you can see later in this downtrend, the volume started to fade on the drops to new lows.
This is another sign of exhaustion of the negative trend.
This works the same way for the positive side.
If the market is breaking up with increased volume you will have a more reliable signal.
And remember, this is a longer time frame trend but it’s just as effective when day trading cryptocurrencies.
For me, volume is the best cryptocurrency indicator to use in all types of markets.
Fear & Greed Index
Now, this might be a new cryptocurrency indicator for most traders.
The cryptocurrency fear & greed index is a very good indicator to use to judge what sentiment the market is having.
In some situations, the market might be positive and this calls for trading on the long side.
When the market is more fearful or negative, it’s better to look for short setups as they will have a higher probability of succeeding.
So what is the Fear & Greed index?
This indicator is a smart indicator that is using the internet to get information.
It uses 6 different factors to judge the sentiment:
- Volatility (25%)
- Market Momentum/Volume (25%)
- Social Media (15%)
- Surveys (15%)
- Bitcoin dominance (10%)
- Trends (10%)
All of this information is gathered together and then an algorithm calculates the number.
You can read more about how this cryptocurrency indicator works here.
Scroll down to learn more about each reading.
Now, let’s take a look at what the indicator is telling us right now.
Today the index is giving a reading of 38.
This means that the general sentiment of the cryptocurrency market is somewhat negative.
It’s not in panic but it’s definitely a little bit sour.
There is also a chart that plots out these numbers and you can actually analyze trends in this chart itself.
I’ve selected the 1-year time frame and this is what it looks like.
As you can see, the chart looks more or less like a price chart, but a little bit weird.
However, you can use this to tell if the market is starting to get more positive or more negative.
I would not use this as a leading indicator, only use it to support your own opinions.
Bitcoin Short Ratio
The BTC Short Ratio is for me one of the best cryptocurrency indicators around at the moment.
Many traders don’t realize how to use it or even what it’s telling you.
Let me explain.
The BTC Short Ratio shows the difference between how many leveraged long contracts and how many levered short contracts there are.
So for example.
If we get a high reading from the indicator, more traders are shorting the market at the moment.
Here is a good example of two times when the market was overweighted on the short side.
I’ve circled the two peaks in short contracts for Bitcoin.
At this time the market was trading very low and most traders were pushing their sell contracts.
Now, here is the interesting part about this crypto indicator.
The more traders that are short in Bitcoin, the higher the probability there is that a positive breakout will succeed.
This is very counterintuitive for most traders and they don’t really understand why.
I’m not implying that you should start buying as soon as the short ratio starts rising.
However, what has proven right for me so many times is that when I spot a positive setup and I see that we have a lot of leveraged short traders in the market.
I know that there is a good probability that these traders might get squeezed out and be forced to buy back their shorts if the market breaks up.
Remember, this will only be a factor if there is a good positive setup ready to break up.
The market will not turn on itself just because there are traders shorting Bitcoin.
No, there has to be a good setup for these shorts to get squeezed out.
But it does happen.
So the next time to use this indicator to analyze the cryptocurrency market and bitcoin, make sure to have your own idea and opinion first.
This indicator should only support your ideas and it’s not a leading indicator.
And remember, this indicator works the other way around as well.
When it shows a very low reading, there are a lot of leveraged longs in the market.
What are the best leading indicators?
The best leading cryptocurrency indicator for me is Volume.
But you can’t only use volume the traditional way that most people use it to make it a leading indicator.
It works well with breakouts both up and down but to really make it a leading indicator you need to use price in combination with volume.
The reason for this is that you need to understand where there are a lot of orders in the market.
A lot of orders are usually clustered close to significant levels or around “floors” in the market.
You can also see a lot of volumes when the market is racing up in a parabolic way.
If you can tell, for any reason, that there is volume connected to a level in the price, you will always get a better signal if the setup actually sets off.
Take a look at this example in Bitcoin.
All of this volume from earlier got squeezed later on when the market turned positive.
The traders with these contracts have no other choice than to close out the position in panic.
Volume means contracts and contracts mean emotions.
If you can adopt this mindset when you are looking at a chart, you will most certainly see the market differently.
Most professional traders don’t use charts the way most amateurs do.
They don’t focus on RSI or MACD.
They try to find areas in price where there are a lot of contracts gathered or volume.
If they, later on, see that the market is moving to break this level, they have found a setup to trade.
To conclude, first find the volume you are looking for and the way for the setup to show itself.
What is the best intraday indicator?
In my experience the best intraday indicator for cryptocurrencies have always been:
The reason for this is that news is a very momentum-driven event where a cryptocurrency can spike very fast or fall very rapidly.
If you can get the news early before a move, you might be in for a good trading day.
The news can be anything from a partnership to a new exchange listing for a coin.
Whatever it is that is either positive or negative for your cryptocurrency there might be a trading opportunity.
News + Volume
When a piece of news is followed by increased volume for any cryptocurrency there is a higher probability that the move will continue throughout the day.
Let’s say that your coin “ABC” is trading at 0.50$ and there is new information that your coin will get listed on Binance very soon.
If you see your coin starting to trade at 0.60$, 0.70$ and this is followed by higher volume at the highs, you should pay very good attention.
This is the time when you know that there is most likely going to be a continuation move later in the day or even for the whole week.
Depending on what kind of news that’s moving your cryptocurrency you can judge how much of an impact it will have.
To be able to day trade cryptocurrnecy effectively you need to be on top of the news in the crypto community.
You want to be one of the first persons on the street to hear about the news and then position yourself in the market.
To do this you need to follow the right people on Twitter, like, the CEO for many of the cryptocurrency trading platforms and some of the biggest news sources.
Also, some of the biggest traders on Twitter will be able to give valuable information sometimes.
To conclude, news and volume are two great intraday cryptocurrency indicators and if you can combine them you might have a good setup for the day.
What are the best momentum indicators?
When it comes to trading momentum plays in the market I would suggest that you use:
By now you should have realized that volume is combined with almost every indicator and there is a good reason for that.
When you trade cryptocurrencies and are looking for momentum setups you need to know that there actually are traders backing up the move.
The only way to read this is through volume.
You might want to use RSI and MACD to get the initial signal but there has to be some way for you to read the contracts behind the setup.
Without anyone pressing the market, you can’t have the right conviction to either go long or short.
So when you are analyzing your cryptocurrency with either RSI or MACD, try to include volume with your signals for a stronger reading.
How do you analyze a crypto chart?
The best way to read crypto charts is through several time frames.
The biggest mistake new crypto traders make is to focus only on a one-time frame.
For example, a trader might be interested to trade the 3min chart or the 15 min chart.
This doesn’t mean that you should only focus on this time frame to understand the market.
The market is being traded on all the time frames, so for you to get a good picture of the market, you need to analyze several charts.
I would recommend that you start with the biggest time frame.
Let’s say you want to find a setup on the 15min chart.
Then you can start by looking at the big picture of how the market is behaving by first analyzing the 1D (day) time frame.
This is where you will find the bigger trends in your cryptocurrency.
That’s exactly what the bigger time frames are good for, finding the general direction of the market.
When you later want to zoom in you have a look at the 6h and 4h charts to see where the market is trading at the moment.
Is it in a range or is it ready to break up or down?
If you have identified that the market is near a pivotal point and might be ready to make a move to continue the trend, it’s time to zoom in more.
Before you make your entry, you need to check the smaller time frames for timing.
That’s pretty much it.
You don’t need to make it that difficult by over-analyzing the market.
These are the steps to analyze a crypto chart
- Start with the larger time frames to identify the general direction (1D/12h).
- If a trend is identified, zoom in one step to see if the market is near a breaking point (6h/4h).
- When you have found a setup within the trend, zoom in one more time to find entry + stop loss levels (1h/30min).
- If you have found your levels, go to your preferred time frame, and wait for your entry signals (15min/5min/3min/1min).
If you can manage to follow these steps when you read crypto charts I think you will improve your market reading skills.
Remember, it takes practice to become a great cryptocurrency technical analyst.
This article has covered the basics of the best cryptocurrency indicator.
You will have a different perspective and a couple of new tips and tricks for using crypto indicators in the future.
My advice is to test them out and see what works for you. Some of these tools might not fit you, while others are a perfect match for your style of trading.
I’m also sure that you are going to learn something new about how to read a crypto chart with indicators.
Also, I hope you will analyze your crypto charts better after reading this guide.
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I would suggest going with basic Volume only, this will give you a very good reading when you analyze crypto charts.
The best and most accurate indicator is the price itself. But if you want to complement this with a cryptocurrency indicator, I would recommend that you use Volume.
Read this guide on how to read Cryptocurrency charts to learn more and improve your technical analysis skills today.