Crypto trading has become a lucrative aspect of the crypto sector. Over the years, crypto traders have taken advantage of the extreme volatility of crypto assets to make money. Analyzing the market is important to predicting how the market will go. To effectively do that, one can use trading indicators to determine the price action of crypto assets.
This article highlights what crypto trading is, tools you can use to help your trading journey, and indicators for your price analysis. Without further ado, let’s get right to it.
What is Crypto Trading?
Speculating on cryptocurrency price movements or buying and selling cryptocurrencies via an exchange is known as cryptocurrency trading. When you trade cryptocurrencies, you’re betting on whether the value of your selected market will rise or decline, but you’re never actually owning the digital asset.
Cryptocurrency volatility is part of what makes crypto trading so interesting. Rapid intraday price changes can offer traders various opportunities to go long and short, but they also carry a higher risk. So, if you decide to explore the cryptocurrency market, make sure that you have done your research and developed the right approach to crypto trading.
Before heading into crypto trading, there are some factors to consider. The next section highlights what you should consider before starting your crypto trading journey.
Tips to Consider Before Starting Your Crypto Trading Journey
Cryptocurrency trading may appear to be simple. However, various things influence whether or not you will be successful. Cryptocurrency trading is not a get-rich-quick scheme but a strategy for developing wealth and earning money that needs patience, dedication, and talent. Here are some pointers to help you along your trading path.
- Diversify Your Investments
“Don’t put all your eggs in one basket,” as the phrase goes, and this concept applies to both digital assets and equities. Investing in digital assets has the potential to be profitable, but it also has the potential to be risky. Diversifying your holdings among numerous altcoins allows you to limit your losses if the price of one cryptocurrency falls.
- Keep Yourself Up To Date With Cryptocurrencies
The cryptocurrency market is always changing, bringing with it new facets of the industry. Staying up to date on what’s going on in the world of investments will help you succeed. Cable news, as well as social media platforms like Twitter, Facebook, and Telegram, are wonderful sources of credible news. Make adjustments to your investments as the market changes to ensure earnings.
- Don’t Risk Your Entire Life Savings On Trading
Cryptocurrencies, like any other financial asset, can be profitable or make you lose money. The crypto market is dangerous, and as an investor, you should only invest money that you can afford to lose. Major crashes have occurred in the past, and more are likely to occur soon. Even if you follow the rules to the letter, there is never a 100% guarantee that the market will go as you predicted.
Both internal and external factors contribute to investment losses. Government involvement, difficult economic times, virus efforts, and hacks are among them. Furthermore, the market is very volatile and subject to manipulation. It is advisable not to invest all your savings and your retirement plan.
- Learn Trading Methods
In the crypto market, there are two kinds of trading analysis methodologies. Fundamental and technical analyses are two of them. The technical analysis depicts a security’s whole price history, such as bitcoin, whereas fundamental analysis focuses on current events that influence a security’s price, such as news events. To optimize revenues, a combination of the two ways is preferable. You can always start staking your cryptocurrency to earn money passively.
Tools to Help Your Crypto Trading Journey
Trading cryptocurrencies is quite risky. There are various tools available to assist you in keeping up with the newest trends and industry data. Here are five tools you may use to gain an advantage in crypto trading.
Messari: Messari is a crypto data aggregator with various chart analysis tools to help you make smarter trading decisions. It offers a screener with several categories, like sector, price, and market cap, that you may use to tailor your research on different coins.
Messari is a free service. You can upgrade to Messari Pro for $24.99 per month paid annually if you want to get the most out of this crypto research tool. The Pro membership is the highest level of membership available. The Pro membership includes daily insights and long-form research, advanced screening, charting, and watchlist features. Pro also lets you download data to a spreadsheet.
Glassnode: Glassnode is an on-chain data and intelligence platform. This means it collects data from various blockchains to precisely evaluate crypto network activity and then reports metrics and insights to investors. Glassnode allows you to look at market indicators for any coin and see how many active addresses have completed transactions. Price data is also available, as well as the ability to set alerts and export data.
Santiment: Another crypto research tool you can use is Santiment. Santiment, like Glassnode, delivers on-chain and social media data on 2,000+ cryptocurrencies, allowing you to forecast any crypto’s price movement.
Fundamental insights and behavioral reports are also available on the platform, allowing you to stay ahead of the curve. Furthermore, you can set up alerts on Santiment to receive notifications if the coin you’re following has a price update.
Beginner crypto investors can get a feel for the market for free by using essential metrics and limited API calls. Premium accounts are available for $149 or $399 a year and include additional metrics and historical data, as well as more API calls and technical support.
CoinGecko: CoinGecko is one of the most comprehensive data aggregators for cryptocurrency prices by market capitalization. You can see real-time price movements for over 10,000 coins and 500 cryptocurrency exchanges.
The software provides an in-depth study of the crypto industry and tracks and measures coins and tokens by market size and exchanges by trading volume. CoinGecko also offers community statistics for Facebook, Twitter, Reddit, and other social media platforms.
With CoinGecko, you may use various other free services to acquire a thorough picture of a particular coin.
Skew: skewAnalytics could be a good fit for you if you’re interested in cryptos and derivatives. A data analytics platform compiles data from major derivatives exchanges such as Bybit, OKEx, Binance, and FTX onto a single dashboard. The platform contains a wealth of useful data from which you can benefit.
With a $279 monthly subscription, individual professional users can add bespoke dashboards and market data dashboards to their available capabilities.
5 Trading Indicators You Should Consider in 2022
We’ve talked a lot about crypto trading and the tools that can help you throughout your journey. Let’s discuss five trading indicators you should consider when trading cryptocurrencies in 2022.
- Relative Strength Index (RSI)
One of the essential crypto trading indicators is the Relative Strength Index (RSI). It analyzes the magnitude and size of the most recent price changes. Swing traders mostly use the RSI to evaluate whether an asset is overbought or oversold.
The RSI indicator is represented by an oscillator, a line graph that travels between two extremes and ranges from 0 to 100. When the quantity and amount of bullish closing grow, the RSI line rises, and when the magnitude of losses rises, it falls.
When the RSI indicator breaks over the 70 levels, it indicates that the market is overbought and may indicate that an uptrend is about to reverse. If the RSI falls below 30, it suggests an oversold market, indicating that the bearish trend may end shortly.
Looking for centerline crossovers is another approach to use the RSI. When the RSI indicator rises over its centerline, for example, it indicates a rising trend.
How to Calculate RSI?
RS = Average Gain / Average Loss
This is the simple calculation of RSI. However, there are several iterations of the indicator. You can rather use TradingView and its in-built RSI indicator to ease your trading process.
- Moving Average (MA)
The moving average (MA) is one of the earliest trading indicators, and it has been used for the technical analysis of commodities and corporate shares for decades. Swing traders utilize MA to calculate the average of an asset’s price movement over a specific period, as the name suggests. As a result, moving averages smooth out the short-term volatility that traders may find confusing.
Moving averages (MAs) are lagging indicators that rely on past price action. As a result, rather than predicting future moves, it would be beneficial if you used them to validate a trend. Depending on how many periods they monitor, you can distinguish between short, medium, and long-term MAs. Short-term MAs, for example, have a period of 5 to 50 days, whereas medium-term MAs have a range of up to 100 days.
Simple moving averages (SMAs) and exponential moving averages (EMAs) are the two basic types of MAs (EMAs). The latter emphasizes recent price movement. Looking for when a short-term MA crosses a longer-term MA is the best approach to use MAs. This is a bullish indicator if the former crosses the more extended MA from bottom to top and vice versa.
- Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is a more complex trading indicator that merges two regular moving averages discussed above. The calculation of MACD is by subtracting the 26-period EMA from the 12-period EMA, though these parameters can be adjusted manually based on your needs. To be clear, the two lines displayed on the MACD chart do not represent the two MAs used for the calculations. Instead, here are the three elements of the MACD indicator:
Swing traders would usually buy when the MACD line crosses above its signal line and go short when the MACD crosses below the signal line. Another way to use the MACD is to look for divergence between the histogram and the price action, which usually anticipates a trend reversal.
Moving Average Convergence Divergence (MACD) can be used with RSI. But it’s also one of the best technical crypto indicators for swing trading.
General interpretations of the MACD indicator are as follows:
Positive MACD = Increasing momentum of an uptrend (price rise)
Negative MACD = Increasing momentum of a downtrend (price fall)
If the MACD increases and crosses above the Signal Line, it is a bullish crossover
If the MACD falls below the Signal Line, it is a bearish crossover.
By coupling trend and momentum, MACD has evolved into a popular yet reliable trading indicator. Also, it provides enough flexibility because MACD can be applied to price charts of different time frames.
Volume is one of the most critical trading indicators for swing traders, although beginners often overlook it. By default, the indicator can be displayed below the main chart and indicates how strong a newly formed trend is.
A volume indicator shows how many traders are buying and selling a cryptocurrency or asset at any given time. The higher the volume, the stronger the trend. Volume is particularly useful for breakout strategies when an asset’s price breaks through a resistance line or falls below a support line.
If the breakout is accompanied by high volume, the new trend is significant. Volume indicators are another class of technical indicators that can be used to increase profits and minimize risk. Once you match entry and exit signals with the right formulas, you can have entry and exit signals as each indicator use a different one. There are many subcategories of volume indicators.
The average volume is one of them. A time span of at least 14 days to weeks can calculate the volume moving average. It’s calculated by dividing a given period in the crypto chart by the number of bars in that same period.
Another factor to consider is the volume momentum. This indicator will look for a change in the volume of an asset over a period of time. By comparing the volume change to the initial price, you can see how a security’s price has changed. The volume will be determined by whether the crypto asset opened or closed positively or negatively.
- Bollinger Bands
The Bollinger Band (BB) is a momentum indicator that consists of three lines – a moving average and two standard deviations, a positive and a negative one. Swing traders prefer this indicator because it quickly detects a trend, the overbought and oversold levels, and the volatility.
The width of the Bollinger band increases along with the volatility and declines when the market calms down. The closer the bands are to each other, the lower the volatility.
While Bollinger Bands work well in trending markets, they do a great job when the price ranges, i.e., moving up and down inside a horizontal channel. In this case, when the price touches the BB’s upper line, swing traders may go short. When the price touches the lower line of the indicator, this may precede a rebound.
The point is that the price would always tend to move towards the center of the BB. If the band starts expanding, it means that a new trend is forming, and you shouldn’t be trading in a range anymore.
Trading cryptocurrencies can be risky but also exciting. Understanding the risk involved will allow you to take your time in making the right research and using the right tools and indicators before investing in a crypto asset. It doesn’t matter if you’re trading for short-term profits or looking for gems to invest in for the long term; the tools and trading indicators mentioned in this article will help you get started. Coupling this knowledge with your risk appetite and time in hand is necessary to become a successful trader.
*Disclaimer: This article is intended for and only to be used for reference purposes only. No such information provided through this article constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific person. Crypto forecasts are based on industry trends, circumstances involving clients, and other factors, and they involve risks, variables, and uncertainties. There is no guarantee presented or implied as to the accuracy of specific forecasts, projections, or predictive statements contained herein. Users of this article agree that LightBlocks Media does not take responsibility for any of your investment decisions. Please seek professional advice before trading.