5 Best Crypto Trading Indicators All Traders Should Know

Crypto trading indicators

Most crypto traders use different indicators to try and predict price patterns in the market. From these indicators, traders start forming strategies to stay abreast on market movements. Technical analysis is a popular method used by many traders to predict future price movements. If you are a trader looking for the crypto trading indicators, this article is for you. Let’s briefly start with understanding few of those best crypto trading indicators.

What are crypto trading indicators? 

Predicting crypto price movements is not easy. Traders use a few crypto trading indicators to do it hassle-free. These indicators, along with technical analysis, are turned into formulas and are drawn into graphs to help traders make better decisions. Some of the best indicators for crypto trading include Moving Average Convergence Divergence (MACD), On Balance Volume (OBV), Stochastic Oscillator, Average Directional Index (ADX), and Relative Strength Index (RSI). Let’s learn more about them here. 

Top 5 Crypto Indicators for Trading 

#1 MACD or Moving Average Convergence-Divergence

Moving Average Convergence Divergence or MACD was developed in the early 1970s as a momentum-based technical indicator popular among large trading populations. It is one of the best indicators for crypto day trading. 

How to calculate MACD? 

Moving average convergence divergence (MACD) is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.

MACD = 12 period EMA (at closing prices) – 26 period EMA (Exponential Moving Average)

What are MACD indicators for crypto trading? 

  • Price rise refers to as positive MACD
  • Price fall is called negative MACD.   
  • If the MACD increases above the signal Line, it is seen as a bullish crossover, i.e., prices expected to rise 
  • If MACD falls below the Signal Line, it is called to be bearish crossover, i.e., prices expected to fall

Why you should use it 

  • It is dependent on moving averages 
  • High accuracy 
  • MACD can be applied to price charts of different time frames 

#2 OBV or On-Balance-Volume

On-Balance-Volume or OBV is a volume-based technical indicator. A cumulative total of an asset’s trading volume, measures the coin/stocks buying and selling pressure.  

How to calculate OBV? 

There are three rules of calculating the OBV, they are: 

  • If the asset’s price closes greater than yesterday’s closing price, then, 

Present OBV = Yesterday’s OBV + Today’s Trading Volume 

  • When the asset’s price closes lower than yesterday’s closing price, then, 

Current OBV = Yesterday’s OBV – Today’s Trading Volume 

  • If the asset’s price is constant, then, 

Yesterday’s OBV = Today’s OBV  

What are OBV indicators for crypto trading?

  • If OBV increases, more buyers are willing to buy the asset at the trading price, indicating a possible price rally. 
  • If OBV decreases, more selling behaviuor marks bearish sentiment in the market. 

Why you should use it

  • The OBV works best when testing significant highs and lows to measure possible breakdowns
  • It can provide many vital predictions  

#3 Stochastic 

A stochastic oscillator is a momentum indicator developed to follow the speed of the price. The concept is derived from the famous rule stating that momentum changes direction before price. It is one of the trading indicators for crypto that usually oscillates between 0 to 100. 

How to calculate Stochastic Oscillator?

%K= (Current Close – Lower Low) (Highest High for the timeframe – Lowest Low for the timeframe) *100 

%D= 3-day SMA of %K, which acts as a Signal/Trigger Line 

%K is multiplied by 100 to move the decimal point two places 

What are Stochastic Oscillator indicators for crypto trading?

  • If the readings are below 20, it is considered low in that particular timeline. 
  • If the readings are above 80, it is deemed to be high in that specific period. 
  • A reading above 80 is an overbought limit which signals sell 
  • A reading below 20 is the oversold limit, which signals buy 

Why you should use it

  • It is easy to understand and has a high accuracy rate
  • This indicator can be used to show when a stock has moved into an overbought or oversold position. 

#4 ADX or Average Directional Index

Average Directional Index or ADX is a trend-based indicator where it measures direction and trend of the asset which are represented using, 

Positive directional indicator or +DI when the trend is upward 

Negative directional indicator or -DI while the downward trend 

How to calculate ADX?

ADX is a complex strategy to calculate. The directional movement index or DMI is +DI minus- DI, divided by the sum of +DI and -DI. Later, you need to multiply by 100. Finally, to get ADX, continue to calculate the DX values for at least 14 periods which yields the results. 

Why should it be used?

  • It helps to understand the strength of a particular trend. 
  • ADX indicators help identify the shift in price through a correlation with various moving averages. 

#5 RSI or Relative Strength Index

The Relative Strength Index (RSI) is also a momentum indicator as the Stochastic Oscillator that measures the speed and change of an asset’s price movements. The RSI indicators read between 0 to 100. RSI is used to evaluate an asset based on its overbought or oversold levels. 

How to calculate RSI? 

RSI is easy to use indicator to calculate when compared to that of the others. 

Here, relative strength = Average gain/Average loss

What are RSI indicators for crypto trading?

  • When RSI is more than 70, then the asset is overvalued and open for a reversal. 
  • When RSI is less than 30, it is undervalued. 
  • If RSI rises above 30, it signals a bullish trend, while it signals a bearish trend when RSI falls below 70. 

Why you should use it

It helps to identify overbought and oversold conditions. 

It helps in comparing the magnitude of recent gains to recent losses to gauge the price momentum of financial assets. 

Why you should use crypto trading indicators 

One should use indicators to predict how the market will react in the future. Crypto trading indicators can be used to keep track of news or movement in other markets that may affect the price. Simply put, indicators help traders to identify high-probability trade entry and exit points to trade efficiently. 

Conclusion 

There are many technical crypto trading indicators in the market. These are some of the most widely used trading indicators that you can pick up with relevant research and implement. But simply, it depends on you to decide what best works for you. So, it is always a good idea to try and explore as many possible ideas and strategies to test what suits you better. 

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