Top 10 Trading Technical Indicators for Trading Cryptocurrencies: Part 1

Zenfuse
6 min readDec 8, 2021

Whether you’re trading forex, crypto, commodities, or shares, the use of trading indicators is beneficial to any trader. The use of trading indicators is often complex to traders as it requires mathematical calculations to identify certain signals and trends within a certain market. But it’s worth the effort.

After all, technical analysis is a very lucrative strategy for investing in cryptocurrencies or other assets. For example, in 2014, CNBC analysts looked at how well their technical analysis notes performed in the markets. In 88% of their calls, the price target was achieved or exceeded. That’s an impressive testament to the power of trading indicators.

So, what exactly are technical indicators? And how can they help trade altcoins or Bitcoin?

Well, technical indicators are pattern-based signals produced by the market price or volume, which traders use in analyzing historical data in the attempt of predicting future price movement. The use of technical trading indicators allows traders to gain more insight into the price trends and limit the risk of losses by identifying the trading entry and exit points.

There are different varieties of trading indicators. For this series, we’ll list the top 10 trading technical indicators for trading cryptocurrencies. With the Zenfuse API, you can use all these indicators to help with trades.

1. Average True Range (ATR)

The ATR indicator was developed by J. Welles Wilder, Jr for determining the average true range of a specified period for commodities. The Average Time Range indicator is not capable of indicating price trend but rather the degree of price volatility.

ATR is a volatility indicator that indicates the movement of an asset, on average, at a given time. Whether you want to trade synthetic assets or crypto ETFs, Average True Range can come in handy.

Formula

Average True Range (ATR) = The Greatest of:

Current High — Current Low

The absolute value of the (current high — previous close)

The absolute value of the (current low — previous close)

Or

True Range = Max of ( high minus low ), (high minus previous low)

2. Double Exponential Moving Average (DEMA)

The Double Exponential Moving Average (DEMA) was developed by Patrick Mulloy in 1994 with an attempt to offer the perfect average without lag. DEMA Attempts to reduce lag associated with moving averages by increasing responsiveness and it’s better suited for short-term traders.

Unlike other technical indicators, calculating DEMA is more complex than just determining a moving average of an asset. DEMA is not a combination of two exponential moving averages but rather the combination of a single exponential moving average and a double exponential moving average that produces less lag.

Formula

To keep the actual data and remove the lag, the value of EMA is subtracted from the previously doubled EMA.

DEMA = 2 x EMA — EMA (EMA)

As EMA is used in the formula, DEMA will need to be 2 x EMA — 1 EMA for the inherent lag associated with moving averages to be removed.

3. Relative Strength (RSI)

Relative Strength Indicator (RSI) was developed by J. Welles Wilder in 1978 to determine the current and historical strength or weakness of the market depending on the closing price of a recent trading period. RSI provides traders with signals about price momentum, which is often indicated below the graph of an asset price.

RSI is displayed as a line graph that moves towards two extremes indicating the current price in a range of 0–100. When using RSI, values above 70 indicate that an asset is overbought or overvalued while values below 30 indicate oversold or undervalued assets.

For instance, you may feel Bitcoin is surging to $100K. However, during that surge, there may come times when RSI gets hot, and a sell-off occurs. This leads to a dip before the run-up continues. During bull and bear markets, RSI can help you identify when to buy, sell, hold, etc.

Formula

To calculate the RS of a market, the percentage change over some time period is divided by the percentage change of a particular index over the same period.

RSI = 100 — (100/ (1 + RS))

RS = Average Gain / Average Loss

4. Aroon Oscillator (ARO)

The Aroon Oscillator is a two-lined technical indicator developed by Tushar Chande in 1995 for identifying trend changes and the strength of a trend. The analysis involves measuring the number of periods that have passed since the last 25-period high and low.

The Aroon Oscillator is very useful for highlighting short-term trend changes. When using the Aroon indicator system, the Aroon Up and Aroon Down lines must be calculated initially before the drawing of the Aroon Oscillator.

Formula

AROSC = AroonUp — AroonDown

Aroon Up = ((25 — periods since 25-period high) / 25) x 100

Aroon Down = ((25 — periods since 25-period low) / 25) x 100

  • When the oscillator moves below zero, it could signal a downward trend.
  • When the oscillator moves above zero, it could signal an upward trend.

The Aroon Oscillator (ARO) is calculated by subtracting Aroon Down from Aroon Up, which ranges from -100 to 100, as the formula indicates. Aroon Oscillator drops below the zero line when the Aroon Down moves below the Aroon Up and the Aroon Up moves above the zero line when Aroon Up moves above Aroon Down.

5. Bollinger Bands Width (BBW)

The BBW indicator was introduced by John Bollinger in the book of Bollinger on Bollinger Bands in 2010. Bollinger Bands Width (BBW) depends on the standard deviation of closing prices from a moving average and its use for identifying the Bollinger Band Squeeze.

This indicator gives traders the signals to prepare for a move — however, the direction depends on the band break. A break above the upper band indicates that the market price is rising, while a break below the lower band indicates that the market price is decreasing.

Formula

Bollinger Bands Width = (Upper Band — Lower Band) / Middle Band

With the above BBW formula, the output of a percentage difference between the upper band and lower band can be determined and used in defining the narrowness of the bands.

Final thoughts

The above trading indicators are very useful for traders who want to manage risks and maximize their trading profits. Depending on a trader’s skills and strategy, a technical indicator can be a useful tool to help trade cryptocurrencies for profit.

Of course, having tools at your disposal to help with analysis helps too. That’s why we built Zenfuse — a platform with built-in analysis, news feeds, and more.

Stay tuned for Part 2!

About Zenfuse

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It aggregates multiple cryptocurrency exchanges, allowing control of funds via API, and powers up the trading process, making trading more profitable, simple, and stress-free.

Our cross-platform app provides rich analytics of both your portfolio and order history, giving you the ability to control your funds on a mobile device.

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