Best Indicators for Crypto Trading: Day and Swing Trading Indicators Guide

• 1. Introduction 
• 2. Moving Averages (MA) Indicator Overview
• 3. Moving Average Convergence / Divergence (MACD) Indicator Overview
• 4. Stochastic Oscillator (SO) Indicator Overview
• 5. Ichimoku Cloud Indicator Overview
• 6. What are Bollinger Bands in Cryptocurrency?
• 7. Relative Strength Index (RSI) Indicator Overview
  
• 8. Fibonacci Retracement Indicator Overview

Introduction

The crypto market is very volatile, but with the right tools traders can make the most of the opportunities therein. The 7 best indicators for crypto trading discussed in this post provide the perfect tools for all types of traders. No matter the category you fall into, as a day or swing trader, proper use of these indicators can protect you from losses, and help you to make some profit.

The best indicators to use for cryptocurrency trading depend on your trading habit. For a day trader, indicators that react quickly to market conditions are more suitable, while slower-moving indicators are the best fit for swing traders. However, a combination of a set of crypto indicators results in a trading system. A good trading system is something that any cryptocurrency trader needs to be successful.

In this article, we will list and explain the 7 best indicators for crypto trading and their variations. We will also help you to figure out how to combine different crypto indicators to create a trading system that will guarantee successful cryptocurrency trading experience.

Moving Averages (MA) Indicator Overview

The first indicator that we will consider in this category is the Moving Average (MA). There are several kinds of moving averages, with each of them serving a specific purpose for analyzing the market. We shall explain the types of moving averages further down in this post. But first, let us define what is a moving average and how to apply it to cryptocurrency trading.

A moving average indicator is the average price of a given market pair during a certain period, relative to the position of the price at any given time. It is dynamic and is used to predict the direction of the market, and the sentiment of the majority of traders. Therefore, it is a tool that helps you see through the chaos to understand which way the majority of traders are going. It is designed to help you stay with the winning team.

A moving average might not help you in the identification of a new trend. However, it will help you find already established trends. The kind of moving average to use is usually determined by the timeframe that you are working with. Shorter timeframes (for day traders) will require faster moving averages like MA 9, while longer time frames (for swing traders) will require slower moving averages like MA 200.

How to use the Moving Averages indicator?

As mentioned above, a moving average is used to confirm an already established trend. This should be the first step to your cryptocurrency trading analysis. Therefore, when the price of a particular cryptocurrency is above the moving average, what you are expected to do as a trader is to look out for opportunities to “buy” the cryptocurrency. On the contrary, when the price is below the moving average line, you lookout for opportunities to “sell”.

The moving average is like the billboard that welcomes you to town before you start looking out for street pointers that would lead you to your final destination. The moving average can also serve as support in an uptrend, or resistance during a down trend. Therefore, you can use the points where the price touches the moving average as a good place to buy or sell, depending on the direction of the market.

A diagram showing how to identify ‘buy’ and ‘sell’ signals using the Moving Average Indicator

Main Types of Moving Averages

There are different types of moving averages depending on how they are calculated. These moving averages are also suitable for different timeframes, but they are the most effective when deployed in a combination.

Simple Moving Average (SMA)

First, let’s answer the question: what does SMA mean? The Simple Moving Average, SMA means an addition of the closing prices over a recent period on a particular time frame, divided by the total number of periods. For example, a simple moving average trading strategy can be deployed on the 4-hour chart by summing up the closing prices of 204 hour candles and dividing it by the number 20. Out of the 7 best indicators for crypto, the simple moving average forecasting is the most commonly used tool for trend determination.

Smoothed Moving Average (SMMA)

The Smoothed Moving Average (SMMA) is a more complex tool than SMA. This particular cryptocurrency indicator makes trend analysis a bit narrower. While SMA sums only the closing prices in a recent period, the SMMA indicator goes a step further and includes more historical data. This addition helps to filter out the noise in the market, thereby eliminating short-term fluctuations that could lead to false signals.

The 20 SMA is the blue line on the body of the chart, while the 20 SMMA is the purple line on the body of the chart

Exponential Moving Average (EMA)

Another kind of moving average indicator is the Exponential Moving Average (EMA). Now let answer a simple question: what does EMA mean?

If you are a day trader, then the EMA indicator might just be the perfect tool for analyzing the market. The calculation of the best ema for bitcoin involves summing up both recent and historical data just like the SMMA. The difference here is that priority is given to the recent data within the time frame under consideration. Therefore, the EMA trendline is useful when you need to make quick decisions during cryptocurrency trading.

Weighted Moving Average (WMA)

The last type of moving average is the Weighted Moving Average (WMA). This is another cryptocurrency indicator that is suitable for short-term trading. Weighted moving average forecasting can be used to make decisions on when to enter a trade. How to calculate weighted moving average? It signifies using both recent and historical data. However, a multiplier introduced in the weighted moving average formula makes progressive prioritization of data from historical to the most recent periods. It is another ideal tool for day traders that can be used in combination with other moving averages.

The 20 SMA is the blue line on the body of the chart, while the 20 WMA is the purple line on the body of the chart.

Simple vs Exponential Moving Average (SMA vs EMA)

Out of the 7 best indicators for crypto, the SMA and EMA form the most popular combination for cryptocurrency traders. The SMA provides a wider spectrum that you can use to know the dominant market sentiment, while the EMA can be used to determine how much momentum is remaining in the trend. This is one of the most classic cryptocurrency indicator pairings that is being used. It is the starting point for many traders, before adding more tools for analysis from our 7 best indicators for crypto.

The 20 SMA is the blue line on the body of the chart, while the 20 EMA is the purple line on the body of the chart

Other moving average indicators that can be used to support the ones mentioned above include the moving average trendline, and the moving average ribbon. The moving average trendline removes the noise by smoothing out the fluctuations in data, thereby showing trends more clearly. You can use it to determine the strength of a trend by considering the distance between the moving averages, or to figure out key support areas by looking at price in relation to the ribbon.

On the other hand, the moving average ribbon is a series of moving averages (MA) of different lengths that are plotted on the same chart to create a ribbon-like indicator.

Read the full article about Moving Averages here.

Moving Average Convergence / Divergence (MACD) Indicator Overview

What is MACD?

The MACD is a more complex crypto indicator that can be interpreted in various ways. It is a useful indicator for all types of traders and can be deployed on any time frame.

What does MACD stand for?

The full meaning of MACD is Moving Average Convergence / Divergence. Three components make up the MACD indicator. They are the MACD oscillator, the signal line, and the MACD histogram.

How to read MACD indicator?

When the MACD line (the faster line) crosses the MACD signal line (the slower line), it indicates that a new trend has begun. At the crossover point, the histogram is at “0”, which is its midpoint. As the trend becomes more established, the gap between the lines increases, and so do the histogram lines. The gap between the line becomes narrower, and the height of the histogram diminishes when the trend begins to lose momentum, indicating that a reversal might be close.

As the MACD lines cross over each other, the histogram value is at “0”

How to use MACD in your trading strategy?

An interesting strategy that is used to deploy MACD is gauging the divergence between the graphic representation of MACD and the bars on the price chart. Therefore, rather than waiting for the MACD crossover which is usually a lagging indicator, this pattern of divergence trading provides early signals for traders to catch trends in time.

Price is moving higher, while the MACD histogram is moving lower, showing a divergence that indicates that the trend is about to reverse

The divergence between MACD and price mostly occurs when there is increased volatility in the market. In an uptrend, when price forms higher highs in succession, while the MACD oscillator forms lower highs during the same period, it shows that the trend is about to reverse, and it’s time to sell. On the contrary, when price moves quickly to the downside and forms lower lows, while the MACD oscillator forms higher lows during the same period, an upward reversal is expected, which is a signal to buy. This is one of the most effective implementations of the MACD indicator during a trading exercise. This divergence can be either between price candles and the MACD lines, or between the price candles and the MACD histogram.

Read the full article about MACD here. 

Stochastic Oscillator (SO) Indicator Overview

The Stochastic Oscillator indicator is used to measure the strength of the momentum of a given trend. With SO, you can determine whether an established trend will likely continue, or whether it is nearing exhaustion. How quickly this indicator reacts depends on the stochastic oscillator settings.

This cryptocurrency indicator consists of two lines: the actual stochastic line and a simple moving average. Both lines move in a range between 0 and 100. Traditionally, below 20 is considered to be the oversold region, while above 80 is overbought. The points of intersection of the lines of the fast stochastic oscillator and the slow one are considered as trend reversal points, but the actual implementation of the stochastic oscillator is usually more technical. This is one of the best oscillator indicators for trading.

In a strong uptrend, the stochastic indicator drops while price only moves sideways in consolidation

Sometimes, during a strong trend, overbought or oversold conditions on the Stochastic Oscillator strategy may simply lead to consolidation in a sideways movement in price. This scenario can occur during a strong uptrend and the stochastic oscillator goes into an overbought condition. As the market consolidates sideways, the stochastic oscillator can drop below 80. This will not mean that you should sell. It simply reveals that the buying momentum has faded for the time being. Also, a divergence between the Stochastic Oscillator and price action can be used as early signals for trend reversal as well.

 

Ichimoku Cloud Indicator Overview

Ichimoku cloud or Ichimoku indicator is a combination of cryptocurrency indicators that show support and resistance levels, as well as momentum. The display of the Ichimoku cloud is imposed on the price in the form of dynamic horizontal lines and cloud regions.

The Ichimoku clouds in day trading provide three main decision-making information points for cryptocurrency traders. When the price is above the cloud, the trend is up. When the price is below the cloud, the trend is down, and when the price is inside the cloud, the market is trendless or in consolidation.

Diagram of Ichimoku cloud on the 4HR BTCUSD Chart

Read the full article about Ichimoku Cloud here. 

 

What are Bollinger Bands in Cryptocurrency?

Bollinger band indicator is another cryptocurrency indicator that is used to measure the momentum of the market. It gives us information on whether the price is in an overbought or oversold condition.

Three lines make up the Bollinger band indicator; a positive and negative standard deviation line, each on either side of the price, and a simple moving average in-between them.

The most important feature of the Bollinger bands indicator is the “Squeeze”. When the lines contract or squeeze inwards, it tells that volatility is low, therefore, traders would expect a breakout. Otherwise, when the lines spread out, it shows that the volatility is high and the trend is running out of momentum.

A diagram illustrating how to identify a Bollinger Band Squeeze ahead of market volatility

In essence, Bollinger bands will not necessarily signal which way the market might be heading. Rather, they are used to interpret when a trend is about to begin or is nearing exhaustion. You can use it to know when to expect a significant move, or when to exit a trade. The best way to use this indicator is by combining it with either the MACD indicator or the Stochastic Oscillator indicator.

Read the full article about Bollinger Bands here.

Relative Strength Index (RSI) Indicator Overview

The Relative Strength Index (RSI) is another momentum indicator that is used to gauge if a particular cryptocurrency is overbought or oversold within a given timeframe. The RSI indicator strategy is represented by a single line that moves sideways between two parallel lines.

The range of the relative strength index is between 0 and 100. Below 30, the market is considered oversold, while above 70, it is considered overbought. However, during sustained trends, the relative strength index can remain in either the overbought or oversold region for long periods.

It is always good to use the relative strength index in combination with other indicators that provide entry and exit signals during trading. In such a situation, the RSI indicator would guide whether to remain in the market or prepare to exit the trade. This indicator can also be used to detect divergence signals, similar to what we explained with the MACD indicator.

RSI indicator in an overbought condition suggesting an imminent drop in price.

Read the full article about RSI here.

 

Fibonacci Retracement Indicator Overview

The Fibonacci retracement tool is one of the most widely used indicators in cryptocurrency trading. This tool is used to plot Fibonacci retracement levels that indicate support and resistance levels on a given price chart. Each Fibonacci retracement level is associated with a percentage retracement of the historical trend under consideration. The levels are 23.6%, 38.2%, 61.8%, and 78.6%. These levels stem from Fibonacci’s sequence, a mathematical formula that originated in the 13th century.

The Fibonacci retracement indicator is used to predict levels where the price is expected to find resistance or support. They can be used to set targets during cryptocurrency trading. For instance, during an uptrend, the price of a given cryptocurrency could be expected to bounce off a Fibonacci support level. This could serve as a good point to buy, while a resistance level could serve as a profit target where you can close a trade in the expectation of a reversal.

On the contrary, a confirmed breakout of support or resistance could also serve as an entry point for a trade in the direction of the trend. This is because, once support or resistance is broken, its identity is flipped. Broken support becomes a resistance, while a broken resistance becomes support.

Fibonacci retracement lines indicating future levels of support and resistance

Read the full article about Fibonacci Retracement here.

Conclusion

With proper implementation, the 7 best indicators for crypto trading described above would form a complete set of tools for successful cryptocurrency trading experience. As already explained, cryptocurrency indicators do not work in isolation. Also, bundling up too many indicators on a given chart might lead to overanalysis and eventual confusion.

For a successful trading experience, you must, first of all, identify what kind of trader you are, either a day trader or a swing trader. Next is to select a set of indicators that are suitable for your trading timeframe as explained in the body of the post. While selecting suitable indicators, ensure to include trend identifying indicators and those that would offer entry and exit signals. A good combination of these sets of cryptocurrency indicators will lead to a successful trading career.

However, always bear in mind that trading in cryptocurrencies is a risky venture with the potential of losing your entire capital. Therefore, do not engage in cryptocurrency trading with money that you cannot afford to lose.

Trading with all these indicators will help you interpret the markets better and help your decision making process. That is why the GoodCrypto software remains the suitable platform for traders that want to make the most out of their opportunities. All of these indicators and more can be found on the GoodCrypto trading software.