If you’re new to crypto trading and investing in the forex and cryptocurrency markets, you’ll want to familiarize yourself with the most widely used technical indicators. Technical trading indicators use historical price data to help traders predict the future direction of a stock or currency. While there are many indicators to choose from, the below are the most widely used and generally the most reliable.
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is commonly used to identify new trends and insights about the trading platform. This technical indicator plots two momentum lines – the MACD line and the signal line. The MACD measures the relationship between two moving averages, while the signal line is an average of the MACD line. When the MACD crosses above the signal line, it is an indication that the price is likely to continue rising . On the other hand, when the MACD crosses below the signal line, it is an indication that the price is likely to continue falling.
Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a technical indicator that is used to measure the momentum of price movements. It does this by comparing the magnitude of recent gains to recent losses over a specified period of time. The RSI is most commonly used as an overbought/oversold indicator and probably one of the most common reasons when it comes to crypto trading, you can usually get much higher momentum volume. When the RSI is above 70, it is generally considered to be an overbought market, while when it is below 30, it is generally considered to be an oversold market.
Moving Average (MA)
The Moving Average (MA) is one of the most popular technical indicators. It is used to smooth out short-term trades fluctuations and identify long-term trades. The MA is calculated by taking the average of past prices over a specified number of periods. When the current price is above the MA, it is generally interpreted as a bullish signal, while when the current price is below the MA, it is generally interpreted as a bearish signal.
Bollinger Bands are a technical indicator used in forex and crypto trading. They are made up of three lines plotted in relation to a market’s price. The middle line of the Bollinger Band is a simple moving average, usually set at 20 periods. The upper and lower bands are typically set two standard deviations away from the middle line. The basic interpretation is that prices tend to stay within the upper and lower bands. This means that when price moves outside of the bands, it is likely to move back within them. If prices move close to the upper band, this may indicate a bearish market,, while prices near the lower band may indicate a bullish market prevailing. .
PSAR (Parabolic Stop and Reverse)
PSAR, or Parabolic Stop and Reverse, is an indicator used primarily in forex and cryptocurrency trading. It is based on the parabolic SAR (Stop and Reverse) indicator developed by Welles Wilder and is used to determine potential reversals in the market. The PSAR indicator works by providing traders with points at which trades can be entered and exited.
The indicator works by plotting dots on a chart that move as the market moves. When the price is moving upwards and the dot is below the price, it is indicating a long position. Conversely, when the price is moving downwards and the dot is above the price, it is indicating a short position. The indicator is also used to determine trend direction, as the dots will align in the same direction as the trend.