The growing number of new traders joining cryptocurrency trading, causing them to question, what indicators to use for crypto trading?
As with many trading lessons in financial markets. Indicators are one of the tools used by traders. Both retail traders and professional indicator traders are an important part of market analysis.
The growth of internet users has spurred information technology by massively driving the growth of the crypto market wildly. Gives hope and also hides some of the risks in it. This article will review indicators that can be used in cryptocurrency trading.
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Brief about cryptocurrency trading
Finsmes described Crypto trading as one of the ways investors can profit from trading cryptocurrency. Meanwhile, cryptocurrency is a digital currency designed for payment using blockchain technology.
What is an instrument in crypto trading?
If in forex trading the object of the transaction is a currency pair between one country and another country’s currency, it is called a currency pair. In contrast to cryptocurrency trading, the asset for the object of the transaction is one digital currency pair or crypto to crypto, and crypto to flat currency pairs are also available.
The crypto to crypto pair for example is BTC ETH, which represents Bitcoin and Ethereum. Or BTC LTC, which represents Bitcoin with Litecoin. And crypto to flat currency pair for example is BTCUSD, which represents Bitcoin with USD, or LTCUSD which represents Litecoin with USD.
Here is example pairs in crypto trading: BTC / USDT, ETH / USDT, ETH / BTC, LTC / USDT, BTC / USD, BCH / USDT, BCHSV / USDT, TRX / ETH, XRP / USDT. XMR / BTC,XMR / ETH, EOS / USDT, LTC / BTC, LINK / USDT, BNB / USDT, PAX / USDT, ETH / USD, TRX / USDT, ZEC / BTC, DASH / BTC, EOS / BTC, BTC / EUR, BCH / BTC, DOT / USDT, BTC / USDC, ZEC / ETH, DASH / ETH.
What the best pairs in cryptocurrency?
There are currently more than 1500 cryptocurrencies listed on Coinmarketcap. So that there are actually a lot of tokens to choose from for trading purposes.
But of the many pairs that exist, some are superior because they are available on almost all exchanges, of course, this can have an effect on the volume of transactions which causes liquidity to increase in that pair.
Choosing a pair is important because the goal of crypto traders is to gain profit. If you choose the wrong choice, the chances of your profit being low, and even losing.
So what is the best pair?
In general, the most widely available currencies are USD, and also EURO, but USD is still at the top because it is the common currency against major commodities in the world.
As for cryptocurrencies, the most widely available on exchange platforms are Bitcoin and Ethereum, as well as Litecoin. The most popular stable coin is USDT, which is a Tether crypto token that is pegged at 1 USDT to 1 USD.
Logically, the large volume of transactions on these assets allows higher price changes. So pairs that have the potential to give the best gain in crypto trading such as BTCUSD, BTCUSDT, ETHUSD, or BTC ETH, as well as BTC LTC.
What is the difference between cryptocurrency trading vs forex?
Market open
The most notable difference between forex vs crypto trading is the market opening hours. In the forex market, it operates 24 hours 5 days a week. However, the crypto market never closes so traders can choose more flexible times for crypto trading because the crypto market is open 24 hours 7 days a week.
Leverage
Then another difference is about leverage. In crypto trading, the leverage offered is usually only 1: 3 lower, whereas in forex it can reach 1: 500, and even some brokers offer up to 1: 1000.
From the difference in leverage, the required trading margin is greater in crypto trading than in forex trading.
Supply market
Forex trading is a global market, it has an unlimited supply of a wide variety of market participants.
While the crypto market has a limited supply, it causes demand to increase so that the price changes in crypto assets are greater than in forex.
Liquidity
Liquidity in the forex market is very high so that no single entity can massively influence prices.
In the crypto market, there is the potential for massive gains to be massive, but it also carries huge risks.
Economic influence
The forex market can be affected by global issues regarding economic conditions. So important traders get the latest news updates on economic conditions related to fundamental issues.
The crypto market is more influenced by the interest of market players in a digital asset, a trend that occurs often such as the phenomenon of market sentiment when positive news on a crypto asset will push up prices.
Risk
Forex trading is a lower risk than crypto trading because price movements in forex are much lower than in crypto which can be more than tens of dollars in daily movements.
Except you buy crypto and store it in your wallet, the risk will lower, although price decline but you still hold the coin in the wallet. Besides that, crypto trading requires a larger capital than forex which allows starting with only $10.
Why crypto trading needs an indicator?
Indicators in trading on financial markets. Both in forex, stocks, futures, binary options, and others, are a trader’s tool in analyzing the market.
The indicator is created using a certain formula by taking historical price data from the past to determine possible future price movements.
It’s like you go into a dark forest, if you don’t have enough equipment, you can face problems so that you get lost on the way.
An indicator is like a compass, which shows which direction to go. This will make it easier for traders to earn profits. However, using indicators should be disciplined with the rules for how to use indicators properly.
The common indicator in cryptocurrency trading
If you use the TradingView chart, you will find dozens of indicators available on the platform. These indicators from “a” to “z” have different names because they are developed with different rules and formulas.
If you want to learn all kinds of indicators that’s fine, but choosing the best indicators for crypto trading makes it much simpler.
The following are some of the popular indicators that can be used in crypto trading.
Simple moving average
The simple moving average indicator is a favorite indicator of one of the crypto figures Joe Lee, who is the founder of the crypto exchange Magnr.
There are many variants of the indicator modification, but you can use 5 periods and 10 periods for short-term trades. Learn more about SMA.
The SMA line during an uptrend market serves as support where it is considered the best area for new trading positions.
Relative Strenght Index (RSI)
Relative Strength Index is an oscillator indicator that functions to analyze prices to estimate overbought and oversold areas through the RSI line to the RSI level.
If the RSI line is above the 70 levels the entry price is overbought, on the contrary, if the RSI line is below the 30 levels, the price enters oversold. Some traders change parameters to use 80 levels for overbought and 20 levels for oversold. It’s to reduced noise in the analysis. Learn more about the RSI indicators.
Chart Tradingview.
MACD (Moving Average Convergence Divergence)
MACD is an oscillator indicator that can function to see the direction of the trend using the signal line and MACD line.
This indicator is used more to find divergence signals that occur in the market that indicate a change in trend.
To confirm the divergence signal is to find the position of the histogram from peak to peak and valley to valley. If there is a difference between the trend lines at the price, it means that soon the price will be reversed. Learn more about MACD.
Chart Tradingview.
Bollinger band, indicators to use in crypto trading
This indicator by John Bollinger is very popular among traders. The main function of Bollinger bands is to measure volatility. This is reflected through the upper band and lower band lines which shrink and widen according to the volatility that occurs.
Various ways of trading with Bollinger bands, with breakouts, trading ranges with the upper and lower bands as support and resistance. Or a triple BB combination with different settings. Etc. Learn more about Bollinger band indicators.
Chart Tradingview.
The stochastic oscillator, indicators to use in crypto trading
Stochastic indicators can be used for crypto trading analysis, this is a leading indicator, which gives signals earlier than price movements.
Through the stochastic level which uses the numbers 0-100, if the stochastic line is above the 80 levels it is an overbought signal, but if it is below the 20 levels it is an oversold signal.
Traders can combine it with the RSI to get a better filter because stochastic signals tend to be active so that false signals may occur. Learn more about Stochastic indicator.
Chart Tradingview.
Fibonacci Retracement, indicators to use in crypto trading
Another indicator that can be used for crypto trading is Fibonacci Retracement. This indicator has support and resistance levels. Those are reflected through the Fibo line which is the calculation of the golden ratio by the discoverer, Leonardo Fibonacci.
Fibo levels act as support and resistance, but the most common way to trade using Fibo is to find a retracement for an entry point. Learn more about Fibonacci retracement.
Chart Tradingview
Ichimoku Kinko Hyo, Indicators to use in crypto trading
This indicator is the most complete indicator, which can be used as a tool to analyze possible future prices by looking at the cloud that is formed in front of the price.
It might look a bit complicated as this indicator consists of a cloud line that sometimes covers the candlesticks. However, if you study them well, the Ichimoku indicator will be very useful for your trading interests. Learn more about Ichimoku Kinko Hyo.
Chart Tradingview.
Best Indicator for cryptocurrency trading
With a large selection of indicators available on the trading platform, choosing the best one is sometimes quite confusing.
Because basically, indicators have their own weaknesses in certain market conditions.
For example stochastic, when the trend is strong, it will often give false signals, even though the entry price is overbought, but in a strong trend it will still push the price up even though the indicator points to overbought.
Therefore, paying attention to or studying market conditions will be able to reduce the error bias of the indicator, more sudden price movements are due to the release of fundamental news.
Which indicator to choose?
Determining the best indicator requires testing within a certain period of time for each indicator. This can be time-consuming, but referring to the test quoted from Babypips, the indicator that provides the best signal accuracy is the Ichimoku.
Test through the appearance of signals and close positions when new signals have appeared and ignore money management.
What is the most accurate trading indicator?
The most accurate indicator depends on the trading style of each trader because one indicator is suitable for a trader, but it turns out to be uncomfortable when used by other traders.
Although Ichimoku is claimed to be the best indicator of crypto, there are still many other indicators that are considered more accurate out there.
Even some of the crypto traders who are less confident in their trading skills prefer to subscribe to crypto trading signals.
Conclusion
Crypto trading is a business in the financial industry. That has the opportunity to profit from trading crypto-assets available on a brokerage platform.
When compared to forex, crypto is higher in risk. But crypto price movements are very attractive to traders. Because they can choose when their spare time is or the best time when the market is busy and high volatility.
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