As the disruptive technology of blockchain continues its rapid rise, many are left wondering if this is a bubble or the future. The truth is while nobody knows for sure, history tells us that new technologies and investment vehicles always bring with them opportunities.
According to Nachgefragt.net, cryptocurrencies are no different, and those who take the time to learn about how to use technical analysis for cryptocurrency trading can find success. Check out these technical analysis tools you can use to trade crypto.
Bollinger Bands
Bollinger bands assist with finding the relative lows and highs in changing markets. The indicator consists of a lower and upper band and a moving average (MA) line.
A pair of Bollinger bands is located below the MA and above two standard deviations, generally for 20 periods. If using the 20 periods, 95% of the overall variation will be contained within the range defined by the two bands.
When a stock approaches the top Bollinger band, it is considered to be overbought, and when it gets to the bottom band, it is considered to be oversold.
When assets fluctuate between the upper and lower bands, this indicates high volatility in the market. Conversely, if the bands are squeezed, then there is low volatility, and this time you can use the range trading method to profit from your trades.
Ichimoku Cloud
The Ichimoku cloud is a handy technical analysis tool for determining support and resistance levels and the trend’s direction. The indicator appears to be complicated and perplexing, but it’s straightforward and quite helpful.
Ichimoku cloud has five vital lines:
- Tenkan-sen: Indicates the average price shown for the first period, the sum of maximum and minimum values divided by a half.
- Senkou Span A indicates that the value of the second time interval is inserted into the center of the distance between the preceding lines and is moved forward by the value of two.
- Senkou Span B: The value of the second time interval is shifted forward by the average price value for the third period.
- Kijun-sen: indicates the average price for the second time phase.
- Chinkou Span: indicates the closing price of the current candle, shifted backward by the figures from the second time interval.
The Ichimoku cloud separates the Senkou lines. When the price is between these lines, the market is categorized as non-trendy. The support and resistance levels are formed where the cloud edges meet. This technical analysis is an excellent case for spot or margin trading. You may trade both long and short in the cloud, but keep in mind that stop orders must be used.
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is a trend-following indicator that examines the interaction of two moving averages:
- A long-term EMA
- A short-term EMA
To calculate the MACD, subtract the 26-period exponential moving average (EMA) from the 12-period EMA. The MACD line is the result of that calculation. However, you don’t have to do all these; the indicator does it for you. All you do is enter the figures according to what you are after.
The final result is a line that you can use to indicate the current trend, and it will also alert you in case there is a change in momentum.
Here is how you can interpret the MACD results:
- The momentum is bullish/buy if the MACD line is above the trend line (signal line).
- In opposites, if the MACD line is below the trend line or signal line, the price is likely to follow a downtrend, which is bearish/sell.
- A convergence indicates a possible trend reversal, and when there is a divergence, it indicates a possibility of the current trend gaining momentum or strengthening.
- If the line crosses each other, the momentum change is probably verified.
Now you understand a few technical analysis tools you can use to trade crypto; however, like any other investment, it is essential to understand the basics of technical analysis to make informed decisions when trading cryptocurrencies.
