I’ve said it before and I say it again, it is impossible to be a successful trader if you only just concentrate on fundamental or just on technical analysis. As there is no magical indicator that will make you tons of money. Crypto or any other form of trading is a complex solution of various techniques applied to the traders needs.
So, which indicator do I use in my daily trading? I keep it simple. I do not use any paid indicators if I’ll ever do I will give you a review of it, but right now my trading system is fully functioning with basic indicators as Fibonacci Retracement levels, Trend lines, Moving Averages, Bollinger Bands.
You can see these are probably the most basic indicators and if you understand them well enough they could become a strong foundation of your crypto trading strategy. I see a mistake that most of the trading beginners do, they put too many indicators in their technical analysis, not even understanding what each of those indicators means and what are their purpose.
Today I want to expand more on simple indicators, to tell you what they indicate exactly and maybe this information will help you to build your own crypto trading strategy.
How do I pick the best technical indicators for crypto?
The answer is simple, by trading and analysing a lot. Also by looking at other traders graphs in “TradingView” or other technical analysis platform. In fact if you look at a number of other traders charts you will see a pattern that traders who use more complex indicators tend to fail more often than those who use simple ones.
I based this whole article around just three classical indicators that most traders or even beginners know already. Keeping it simple is my style of trading and in crypto markets this attitude is working just right.
Fibonacci Retracement Levels
Fibonacci is a famous Italian mathematician from a 13th century. He is known for writing down a sequence where each number is the sum of two numbers before it. The sequence goes like that: 0, 1, 1, 2, 3, 5, 8, 13, 21… but what does this string of numbers have anything common financial markets, you may ask?
Well, in financial markets something called Fibonacci Retracement levels are used. These levels are calculated by taking any number from a sequence (not from the first numbers) and dividing it from a number to its right. What you get is 0.618 or 61.8% or in other words “Golden Ratio”, other levels are calculated accordingly by taking second, third… numbers to the right.
There are 4 Fibonacci numbers that are used in trading they are: 23.6%, 38.2%, 61.8%, 78.6% and 50% which is not a Fibonacci number.
Then what? Fibonacci retracement levels are used as support and resistance levels. The trend line is drawn connecting low and high points of price and in between of this range at percentages mentioned above support or resistance levels are calculated. Like in the example below.
Fibonacci levels have several uses amongst traders they could be seen as stop loss levels, take profit levels or entry levels. For example, if Bitcoin is in uptrend right now and a crypto trader is looking for an opportunity to enter into a trend, he or she will probably wait for price to reach 61.8% from Bitcoin’s peak value and buy in that range.
Why does Fibonacci levels works at all? Well “Golden Ratio” is something that occurs in the Nature over and over again, like in sunflower seeds, humans fists and many natural things. So, that is these numbers are fundamental. In financial markets similarly, they are considered as fundamental levels by many traders.
The problem with Fibonacci levels is that you will never know which level is truly gonna work as support or resistant in a particular trend. For this reason I use other indicators together with Fibonacci retracement levels to get fullest sight of market.
Trend lines may not be considered as “indicators” by some, but they have their place in many traders technical analysis toolbox. Let’s begin with definition what is trend line and how to use it in cryptocurrencies trading?
Trend line by definition is a diagonal line that can be drawn between three or more pivot points. Note that a line is not a trend line unless it touches more than two points. Trend line according to if it is above or below the current market price could be considered support or resistance trend line.
Similarly trend lines could help to indicate uptrend, downtrend or consolidation. The most important thing when drawing trend line is to select the right time intervals. I like to use three different time frames when drawing trend lines, one above and one below my time frame. For example, if I am trading at H4 and discover an uptrend, I will check D1 and H1 charts for a confirmation.
I think, trend lines are still very important indicator for a lot of traders. Why? Well, first of all they are easy to use and understand. Everyone even a beginner could easily draw a trend line on any given chart. Secondly, trend lines are the simplest indicator there is. No hard calculation or advanced tables are involved. Just a line which is treated as support or resistance level. That’s what I like about trend line the most and that’s why it is the most important indicator in my crypto trading strategy.
The most complex indicator of those that we’ve discussed today are Bollinger Bands. They are really easy to master or just understand enough to use them in your trading strategy.
Bollinger Bands are technical indicator created by famous trader John Bollinger. It consists out of three lines, one Simple Moving Average and two standard deviations positive and negative. Together these lines creates a plot.
Standard deviation measures volatility, so the lines widen when market is volatile and contract when the market is calm. This is the most important tell you can get from a Bollinger Bands. Most traders use them as an oscillator to determine future crypto volatility.
If Bands are close together, there is a possibility of higher volatility in the future and vice versa. Bollinger Bands has almost no use their own, the creator himself liked to use them together with other indicators such as MACD or RSI.
What Do You Have to Do To Find the Best Crypto Indicator For Yourself?
Simple answer is to find indicators that you understand well. Don’t go to advanced indicators, because “everybody are using them”. The truth is that 90% of all traders are losing money in the long term. So think with your own head, analyse historical data and find what works the best for you.
For me, these three classical indicators are enough right now. But as I’ve mentioned before, just technical analysis is never enough in crypto trading.
Please note that all the information in this article is my personal opinion and should not be treated as financial advice.