Top 5 Cryptocurrency Technical Analysis Indicators & How To Use Them

Updated: Nov 23, 2019


There is no single best technical analysis indicator in crypto despite what some may say. Furthermore, what works best for one trader may not work well for another. This is by no means a definitive list but the following are the indicators that I've found to work the best throughout my trading experience.


1) Volume


Volume is often overlooked, possibly due to the fact it's built into TradingView charts by default and the fact that it rarely provides actionable information on it's own. It can also be difficult as the exchanges which receive the most volume can fluctuate over time, making the volume data difficult to compare. However, used properly it can be one of the most important factors to look at in addition to price action.


One way to use volume is as an oscillator to compare with price action or to spot divergences (more on spotting divergences here) as seen below.

Price-Volume Relation

When price is increasing while volume is declining, that's a bearish divergence and I've highlighted two examples above. On the other hand, if price and volume are moving in the same direction it's often a confirmation of the direction price is moving; in other words, if price and volume are both increasing it's a bullish sign, if price and volume are both decreasing it's usually a bearish sign.


Volume can also be used to spot buying/selling opportunities. For example, on the far left in the above image there's a significant wick to the downside which indicates Bitcoin was bought up quickly from the daily lows, a bullish buy signal which is confirmed by the significant spike in volume. Likewise, if there was a wick to the upside and a significant spike in volume that may indicate an end to a move to the upside and provide a bearish sell signal.


Lastly, volume can be a great sign of accumulation, especially during periods of relatively flat price action. For example, TomoChain displayed a significant drop in volume towards the end of it's selloff and then as price flat-lined volume increased significantly. For me, this was a clear sign of accumulation at market bottom and it wasn't long before price made a big move to the upside.

Increasing volume at market bottom

2) RSI


RSI is probably one of the most well known indicators and likely the first one many new cryptocurrency traders try out. However, it's often incorrectly used with traders identifying oversold conditions as buying opportunities and overbought conditions as selling opportunities. The reality is, both of these conditions can persist for long periods of time while price continues to trend up or down, and often the largest moves will happen during these periods. I've highlighted examples of both of these in the below chart.

Extended period of RSI overbought/oversold

Now an asset won't stay oversold or overbought forever, but buying/selling strictly on that is clearly a flawed strategy. A more reliable, but still imperfect, approach is to look at when RSI is oversold/overbought and begins to move out of oversold/overbought territory. In the overbought example above, when RSI was overbought and broke below 70 it aligns closely with the market top and likewise in the oversold example above when RSI moved strongly above 30 there was a relief rally.


However, that's still not my preferred way to use RSI; in my opinion, one of the best ways to use RSI is to treat it like price and by that I mean chart up trendlines, support and resistance as shown below.

Charting RSI - resistance, support and more

Let's start with support and resistance - going back to mid-September, Bitcoin never managed to establish itself above the 57 level and was ultimately rejected by that resistance right before the big drop began. Meanwhile, the 40 level was also acting as support throughout this period and on November 13th (the day before $6000 broke) RSI broke through this level. More recently you can see these exact same levels have been in play with Bitcoin failing to break 57 and continually bouncing from the 40 region until it lost it on January 28th and subsequently, Bitcoin dropped below $3500. You can also draw trendlines on RSI to identify breakouts or breakdowns. For example, on November 25th RSI broke the downtrend line and made a higher low, suggesting a local bottom and price rallies soon after.


Lastly, RSI is also a very strong oscillator for spotting divergences. I won't go in to that application much here as it's covered in length in my spotting divergences piece. Overall, I consider RSI to be in many ways an all-purpose indicator as it has many uses and if I were to be limited to using only one indicator it would be RSI.


3) Stochastic RSI


Stochastic RSI (also known as Stoch RSI or SRSI) applies a stochastic calculation to RSI, essentially measuring RSI relative to it's highs and lows during the selected period. The Stochastic RSI is my favorite oscillator for finding divergences (details on that here) and as such I'll use it on most of my charts. However, it's also a reasonably accurate momentum indicator - in fact, if you had done nothing other than buy Bitcoin when the Stoch RSI crossed out of oversold and sold Bitcoin when the Stoch RSI crossed out of overbought you would have done better than most traders during the second half of 2018.

Stochastic Crosses, H2 2018

Overall the Stochastic RSI is a versatile tool and is one of my favorites both for divergences and for indication of momentum.


4) Moving Averages


Moving averages are another one of the better known indicators out there and are quite simple to understand as they simply represent price over the previous "x"periods. There are simple moving averages (SMA), which give equal weight to all prices, and exponential moving averages (EMA), which give higher weight to recent prices. I tend to stick with SMA's, particularly the common ones (20, 50, 100, 200), but everyone has their own preferences. The uses of EMA's and SMA's vary widely - they can be used as support/resistance, identifying trends, or even as a crossover strategy to determine buys and sells.


The primary way I use moving averages is as a trending tool, particularly with the 50 day SMA. If an asset remains above, or breaks above the 50 DMA after previously being under it, it is in an uptrend and I'll look for buying opportunities if price action supports it. Likewise, if it breaks under the 50 DMA I might be more inclined to sell the rallies rather than looking to buy the dips. However, I do also sometimes use moving averages as support/resistance and apply the same principles; if price remains above the moving average, it will provide support, if price breaks below the moving average, it will act as resistance. You can see how this has played out quite well over the course of Bitcoin's history below.

I personally don't pay much attention to crossovers though I may make use of them during sideways price action to identify potential breakouts. Several traders use crossovers as their primary trading tool and do very well but that's never been the style that worked for me.


Overall, moving averages are a complement to price action to determine market trends and can also be used as support or resistance zones. I'm a fan, particularly on larger time frames such as the daily or weekly.


5) Volatility-calibrated ATR


Last, but certainly not least, is one many may not have heard of. Volatility-calibrated ATR is a custom indicator developed by @stormxbt who has developed a number of awesome indicators, ATR being my favorite of the bunch. I won't pretend to know the in's and out's of the indicator, but for me it's a great trending tool with highly reliable buy/sell signals and it even provides some context about support and resistance; basically it's like a moving average on crack.


I'm a big fan of using it on the 4-hour and 1-day charts, though the man himself has said it's tuned to be used from the 2-hour up to 1-day. The chart below shows it in action but it's publicly available on TradingView here so make sure to give it a go.

@stormxbt's volatility-calibrated ATR

Conclusion


As I said before, there is no perfect technical analysis indicator for cryptocurrencies and the five I listed may not even be the best ones available. A lot depends on trading style and the way the indicator is utilized and these are the ones I've found work best for me. I've used other indicators including the Supper Guppy, On Balance Volume (OBV), MACD and others with good results but always ended up coming back to some combination of the five above.


That being said, I strongly encourage traders not to use too many indicators on their charts and to not become too reliant on them. Indicators are meant to inform and confirm trade setups and should not be solely relied upon for trading decisions. Furthermore, I also encourage traders to stick to the same indicators so that they can become experts in a few rather than becoming novices in several.


Do you have a favorite indicator you feel I overlooked? Feel free to post it and any other comments you have below.


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