Let’s kickstart your trading journey with part 2 of our series on technical indicators for trading cryptocurrencies.
As a crypto trader, there’s nothing more amazing than gaining insight into the supply and demand of securities and market psychology. Guess what? That’s what these technical indicators provide to crypto traders.
These technical indicators enrich crypto traders with potential clues and signals of market price movement, whether it’s time to buy or sell crypto. You don’t need to use all of the indicators we listed at once. You can pick a few that suit your trading skills for better trading analysis and decisions.
But how can you achieve this?
First, explore the technical indicators listed below and learn about them to determine what works best for you. For instance, some indicators may be easier for you to use, or you may feel some indicators work better than others.
At Zenfuse, we strive to help you become the best crypto trader you can be. So without further ado, let’s dive into part 2 of the technical indicators for trading cryptocurrencies.
6. On-Balance-Volume (OBV)
On-Balance-Volume (OBV) shows the running total of an asset’s trading volume. This trading indicator is suitable for predicting bullish or bearish outcomes. It’s a technical trading indicator of momentum that uses volume changes to determine price prediction.
OBV was developed by Joe Granville in 1963 and introduced in his book titled Granville New Key Stock Market Profits. OBV is an indicator for measuring the positive and negative flow of asset volume.
As a crypto trader who is familiar with charting, you can use OBV to monitor and predict price movement.
Here are the three rules for calculating OBV:
- As OBV is the running of total positive and negative volume, a volume is determined to be positive if a closing price is higher than the previous closing price, then;
Current OBV = Previous OBV + Current Volume
- However, when the closing price is below the previous closing price, then;
Current OBV = Previous OBV — Current Volume
- And lastly, if the closing prices happen to equal the previous close price, then;
(no change) Current OBV = Previous
7. Accumulation/Distribution Line (A/D)
The accumulation and distribution line indicator is a volume-based indicator for determining market trends - — whether traders are accumulating (buying) or distributing (selling) based on its volume and price.
A/D indicator was developed by a popular trader and analyst Marc Chaikin. Chaikin developed the indicator as a means of identifying divergences between asset prices and volume flow to predict its future outcome. The A/D line provides clues and signals on how strong a market trend is, and is useful whether trading altcoins, Bitcoin, stocks, or another asset.
A/D Line Formula
A/D is calculated with the below process and formula:
- First, find the money flow multiplier with:
MFM = ((Close — Low)- (High — Close))/(High — Low)
Where MFM = Money Flow Multiplier
Close = Closing price
Low = Low price
High = High price
- After calculating the money flow multiplier, the money flow volume can be determined with:
Money Flow Volume = MFM X Period Volume
- Finding A/D:
A/D= Previous A/D + CMFC
Where CMFC = Current Period Money Flow Volume
8. Average Directional Index (ADX)
Average Directional Index (ADX) was developed by Welles Wilder Jr. in 1974, as an indicator for gauging the strength of trends irrespective of their directions.
As an oscillator indicator, the Average Direction Index fluctuates from 0 to 100, with a reading below 20 indicating a weak trend and above 25 indicating a strong trend. The ADX can be useful for preparing for a bear market, as you can potentially identify a strong downward trend ahead of time.
Note: ADX only determines the strength of a trend without informing you if a trend is bullish or bearish.
Calculating ADX is a little bit complicated due to its multiple lines. ADX equals 100 multiplied by the exponential moving average (EMA) of the absolute value of (+D1 — D1) divided by (+D1 + -D1).
Thus, we can calculate ADX as:
ADX = 100 * EMA ((+D1 — D1)/(+D1 + -D1))
9. Stochastic Oscillator
The stochastic indicator was developed by George Lane in 1950 as a useful momentum indicator for determining overbought and oversold signals.
According to George Lane, “Momentum always changes direction before price.”
Stochastic Oscillator Formula
Here’s how to calculate the Stochastic oscillator:
%K = (Current Close — Lowest low)/(Highest high — Lowest low)*100
while “slow” Stochastic indicator is referred to as %D, and it’s taken by:
%D = 3 period of moving average of %K
Note: In the Stochastic Oscillator chart, there are often two lines. One line indicates the actual value of the oscillator, while the other indicates the three-period simple moving average.
Also, as a market trends upward, the price will close towards the high. But if it trends downward, the price will close near lows.
10. Fibonacci Retracement
Fibonacci Retracement uses horizontal lines to indicate support and resistance levels. This indicator is named after the Fibonacci Sequence of Numbers, which is all about providing price levels on how markets retrace a portion of their movement before a trend continues in a specific direction.
Fibonacci Retracement is useful for indicating areas where your asset price may reverse or stall. The indicator can come in handy during any market and whether you’re trading synthetic assets, altcoins, Bitcoin, or another asset.
Fibonacci Retracement Formula
Fibonacci Retracement levels are calculated using:
For an uptrend market, it’s: UR = High Price — ((High Price — Low Price) * Percentage)
For a downtrend market, it’s: DR = Low Price + ((High Price c- Low Price) * Percentage)
UR is the uptrend retracement.
DR is the downtrend retracement.
The percentage is the Fibonacci retracement levels.
Review the formulas and charts for these trading indicators, as you must understand calculation and charting when using these technical indicators to maximize your trading experience. Once you’re 100% comfortable with using them, begin applying these indicators to your trading strategy.
As always, if you have any questions, connect with our community in Telegram and use your resources. Additionally, use crypto trading APIs like Zenfuse to help with leveraging these indicators to your advantage.
Good luck trading!
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