Indicators on a particular crypto trading chart are calculated by making use of statistics and mathematics, and they can assist you in assessing previous price plans and movement for future moves in price.
What you should know is that they indicate where the price might be moving to. Indicate is not a precise science but rather a keyword.
Various mathematical indicators describe various things. The direction of price, volatility, strength or resistance, and support levels are all important things you can see with indicators.
As is the scenario with anything else in crypto trading or any other kind of trading for that matter, one indicator is not sufficient to fuel your plan of trading. By leveraging indicators in conjunction with one other, and with other tools of trading such as chart patterns, is the ideal manner to verify your thoughts.
You can fit the majority of the indicators into two main categories: lagging and leading. Leading indicators tend to describe the price trend momentum. On the other hand, lagging indicators follow crypto trends that are confirmed.
Something interesting and rather important to keep in mind about indicators at all times is that they can follow resistance and support, similar to how price does. It is something vital that you need to look out for!
Moving average takes recent action in price and then and smoothens it out. This helps traders with identifying trends, including the resistance level and support level identification.
A moving average is dependent on historical data of trading, and thus has a delayed response to the current movement in price. Moving averages are categorized as lagging indicators but here it is very important to bear in mind that this certainly does not mean that they are not useful.
There happen to be 2 moving averages commonly: exponential moving average and simple moving average. The latter is quite simple and it takes the closing prices from the particular period and calculates their average.
The exponential moving average is tailored to be not as much of lagging as a Simple moving average, so it is more impacted by the current movement in price.
This means it creates more signals, but crypto traders must bear in mind that this also boosts the frequency of false signals of trading or those that are too early.
What you should know about moving averages is that they come in various forms, which differ by length or period.
200, 100 and 50 are all famous moving average periods, where “period” is a reference to the time frame you are viewing on the trading chart. If you are making use of the 1-day chart, 200SMA is a reference to averages of the last 200 days of the movement in price.
Divergence is something important to keep an eye out for between price and some of the indicators. There are four patterns of divergence you will see, known as bearish, bullish, hidden bearish, and hidden bullish.
Divergence can offer some great bearish or bullish indicators that you can make use of to pick your crypto trades.
Here is how to observe each of these important divergence patterns. Make note of all of these patterns as they can help you a lot.
- Bullish divergence is observed when the crypto price shows lower lows, but the indicator shows a higher low.
- A bearish divergence is revealed when the price indicates a higher high, but the indicator reaches a lower high.
- Hidden bullish divergence is observed when a higher low in the price relates to a lower low in the mathematical indicator.
A crucial thing to know about divergence if you are a crypto trader is that the longer scale of time you are on, the stronger the trading signal is. So, bullish divergence on the weekly trading chart is more powerful than on the 15-minute chart. This is absolutely vital to keep in mind when you assess crypto trades.