Top 3 Cryptocurrency Technical Analysis Trend Indicators

Updated: Nov 23, 2019

Ever heard the trading adage "the trend is your friend"? This holds true more often than not and is particularly relevant for swing trading in crypto. Furthermore, the trend (bullish or bearish) can often define what the higher reward setups are. But how do you know what the trend is and how do you know when to enter or exit? Here's some indicators that will help answer just that.


1) Moving Average (MA) & Exponential Moving Average (EMA)


MA's and EMA's are a staple in trading and are arguably one of the most used indicators out there. I talked about them in depth in Top 5 Cryptocurrency Indicators so I'll spare the details on what they are and focus more on how they can be used.


One of the simplest uses is to have a specific moving average that applies best to your trading style and treat it as a line in the sand for when the market is bullish or bearish. Ask 50 traders and they'll probably give 50 different answers but I personally like the 50 day moving average, shown here.

50 day MA for Bitcoin

Throughout the entire run up to $20,000, price never stayed below the 50 DMA for more than a few candles and when it did finally deviate significantly it was followed by a massive decline in Bitcoin's price. On the flip side, when Bitcoin broke the 50 day moving average for the first time since September 2018 it was the start of the current run to $14,000.


One other common strategy with MA's and EMA's is to look for crossovers between a given set of moving averages. A bullish crossover occurs when the faster average crosses above the slower average whereas a bearish crossover is when the faster average crosses below the slower average. The former is often used as a trade entry and the latter as a trade exit. There's plenty of debate over the best crossover to use but I personally like the 5/21 EMA crossover as an entry signal. Below is the NANO chart with a 5/21 EMA crossover applied to show potential entries and exits. Generally I only use crossovers as an entry signal and then when deciding an exit I will combine it with something like the 50 DMA or support/resistance levels.

5/21 EMA on Nano

Another moving average based approach is what is known as the Guppy. Typically a guppy is a number of EMA's rolled into ribbons which attempt to define market direction and changes in trend. There's also more advanced use-cases, particularly for day traders, but I won't go into that as the focus here is on higher time frame trends. Personally I've never really gotten behind using the Guppy simply because I found other methods to be simpler to interpret with similar results but I know a number of traders who live by the Guppy and the Bitcoin daily chart gives a pretty clear picture of how effective it can be.

Guppy

2) Average True Range (ATR)


Average true ranges attempt to measure volatility within a market and can define market trends based on whether price is below or above the range. They are a fantastic indicator because it cuts out a lot of noise and can provide simple, profitable trade opportunities in addition to defining market trends. I'll spare further details as the charts make it pretty clear how to use and interpret them.


My favorite ATR which I included in my Top 5 Cryptocurrency Indicators is done by @stormxbt but unfortunately is no longer publicly available. A great alternative that is available for free on TradingView is the one by Sylvain Vervoort. Looking at them on the Bitcoin daily chart shows how easy they are to interpret and how they've quite reliably picked up on market trends.

@stormxbt volatility-calibrated ATR

ATR by Sylvain Vervoort

3) Trendmaster


Trendmaster is a really great indicator developed by @IchimokuScholar and @Crypto_C00kie. I rarely recommend paid indicators because there's so many free ones that are just as good but this is one that I would consider worth it. It's simple to use, reliably accurate and there's a few different versions of it to suit your style. I can't personally vouch for all of them as the only one I've used is an older version of the classic Trendmaster, pictured here, but I've certainly heard good things about most of them.

Trendmaster

In this version, the strategy is fairly obvious. Long a confirmed close above the cloud, short or exit a confirmed close below the cloud. I believe the creators recommend it to be used with Heikin Ashi candles but I've always used it with traditional candles and had success. There's some subtleties for using it optimally, especially in regard to where to place stops but if you do decide to try it out there's plenty of resources on the site. Free trials are available at https://www.trendmaster.io/. Note that I have no affiliation with any of the creators of this tool, just a fan of what they have built.


Conclusion


As I've mentioned before, no indicator is perfect and I always suggest they are used in addition to price action and basic support/resistance. However, using indicators such as the ones above can save a trader a lot of time analyzing charts and even if entries and exits were taken solely as a result of these indicators you would likely come out ahead of many traders. Different indicators are better on different time frames but most of the ones described above are ideal for the daily but can be used on the weekly or 4-hour charts as well.

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