One of the most essential tools for traders are the technical analysis indicators for trading. It is thanks to them, that traders are able to perform powerful market analysis of an asset or cryptocurrency. And thus, make the relevant decisions on the inputs, outputs or HODL of a particular asset. In a more direct way, technical analysis indicators help us to carry out a good trading strategy in the markets in which we participate.
It is for this reason that knowing these indicators, how they work and in which cases they are more or less useful, is one of the first tasks that every trader should have in mind when documenting and entering the world of trading. In such a case, in order to help you take your first steps in the world of trading, Atani has compiled a series of basic and essential indicators, which you should know to perform technical analysis correctly and thus, to be able to carry out trading sessions with the highest possible level of success.
What are technical analysis indicators in trading?
A technical analysis indicator in trading is nothing more than a statistical tool, one that allows us to take the current and past data of a market, in order to predict the future conditions of that same market. In this way, the trader can have at his disposal a tool that helps him to “see into the future” of an asset, and make decisions with respect to the information provided by his analysis tools.
However, you must keep one thing in mind: “seeing into the future” with an indicator does not mean knowing the future for sure. As we pointed out at the beginning, an indicator is a statistical tool, so the information it shows us is based on probabilities. Remember that many parameters act in a market, starting with the most chaotic of all: the human mind and psyche.
Thus, for example, if a market is showing a constant rise in value (demonstrated both in the market, purchase volume and indicators), it is enough that a FUD campaign begins with a strong sale, so that the psyche of many of the traders is altered, and begin to create a snowball effect (it begins to sell and sell more), the market is flooded and the price of the asset goes into a tailspin. In extreme cases, even a good trader has trouble predicting this type of movement, even using technical analysis indicators. This makes one thing very clear: indicators are not infallible, and while they are very useful, our strategies should not be based solely on their data.
Location of indicators in Atani
If you want to use the indicators that the Atani application has for you, all you have to do is go to the “Trade” tab and from there select “Indicators” as shown in the screenshot:
When you click there, a box will be displayed in front of you where you can browse through all the more than 140 indicators available.
You can select the ones you want, but remember two points:
- Some indicators may give you confusing information if you don’t know how they work.
- The oversaturation of information is counterproductive. Some indicators can even give you signals completely different from what you expect according to how they are configured.
Essential indicators for technical analysis in the world of trading
Now, it is good for you to know that there is a huge infinity of technical analysis indicators that you can apply in the trading world. In fact, our Atani application has more than 140 technical analysis indicators, arranged in their entirety for you to take advantage of.
However, each and every one of these technical analysis indicators is different and has very specific functions. In fact, not knowing how to use the indicators is the main reason for wrong signals and, therefore, for important losses in your trades.
Moving Average (MA)
One of the most basic and essential indicators within the world of trading and technical analysis is the Moving Average (MA) or Simple Moving Average (SMA). Basically, this indicator helps us to highlight the average value of a token or cryptocurrency, and easily recognize the trend of the same.
The MA takes the price of the token to create an average value. Thanks to this, the trader can observe whether the security is bullish or bearish within a stipulated period of time.
However, one drawback of this type of indicator is that the data provided by it is lagging. That is to say, the price chart drawing has a small-time lag according to the time parameter we use within the chart. For example, if we use a 15-minute chart, our current MA will show us the price value of that token for the last 15 minutes, and not for the exact moment we are trading. This lag increases according to the time period used in the data capture. So, every trader must be attentive to the time setting used for its visualization.
Nevertheless, the MA or SMA indicator is a vital and very basic indicator that every trader should know.
Exponential Moving Average (EMA)
Another basic indicator in the trading world is the Exponential Moving Average (EMA). This indicator is directly related to the Moving Average (MA or SMA) indicator, and its main difference is that we can specify the time periods (or frequency) with which we take the price of an asset within a certain period of time.
The EMA calculation is perform using the following formulation:
Current EMA = [Closing price – EMA (previous day)] x multiplier + EMA (previous day).
But don’t worry, you won’t have to perform this operation manually. Atani has a powerful algorithm that will do all this for you fully automatically. However, we mention this formulation so that you are familiar with it and understand the following advantages of EMA over MA.
- EMA is a much more price-reactive indicator than MA. That is, the reaction of price rises or falls within EMA, are shown much faster than in MA indicator. This is very useful if you are a trader who trades on short periods of action.
- Both EMA and MA are set indicators, i.e. they can be combine with other tools in order to decide whether or not it is a good time to enter or exit a market. In this way, we can configure a good set of indicators that will indicate the best time for us to act in the market.
Relative Strength Index (RSI)
One of the most basic indicators in the trading world is the RSI or Relative Strength Index. This indicator, known as a momentum indicator, tells us whether an asset is overbought or oversold. To give us this data, RSI measures the magnitude of recent price changes of that asset. In the end, the indicator converts all the market data into an oscillator chart ranging from 0 to 100. And, tells us whether that asset is overbought or oversold.
Thus we have that:
- If the momentum is bullish (>= 0), the price of the asset goes up, because more and more people are buying the asset.
- If the momentum is bearish (<= 100), the price of the asset goes down, because more and more people are selling the asset.
- On the other hand, if the RSI momentum is above 70, the asset is considered to be overbought.
- Finally, if the RSI momentum is below 30, the asset is considered to be oversold.
In any case, RSI is an excellent tool to know if an asset is about to suffer a rise or fall in its price. Even so, it would be better not to think of these values as direct buy or sell signals. As with many other technical analysis techniques, RSI can provide false or misleading signals. So, it is always useful to consider other factors before initiating a trade.
Stochastic RSI (StochRSI)
The stochastic RSI is a momentum oscillator that tells us whether an asset is overbought or oversold. As the name suggests, it is a derivative of the RSI. In fact, it uses RSI values and not price data. This is create by applying a formula called the stochastic oscillator formula to ordinary RSI values. Typically, stochastic RSI values range from 0 to 1 (or 0 to 100).
Because of its greater speed and sensitivity, the StochRSI can generate many trading signals that can be difficult to interpret. Generally, it tends to be most useful when it is near the upper or lower ends of its range.
A reading above 0.8 is read as overbought, while a value below 0.2 is read as oversold. A value of 0 means that the RSI is at its lowest value in the period (default setting is 14). Conversely, a value of 1 represents that the RSI is at its highest value in the measured period.
Similar to how the RSI should be use, an overbought or oversold StochRSI value does not mean that the price is likely to reverse. In the case of the StochRSI, it simply indicates that the RSI values are near the extremes of their recent readings. It is also important to note that the StochRSI is more sensitive than the RSI indicator. So, it tends to generate more false or misleading signals.
MACD (Moving Average Convergence Divergence)
MACD or Moving Average Convergence Divergence, is one of the most used indicators by cryptocurrency traders. This indicator allows the trader to analyze the trend of a market. To achieve this, MACD is based on mathematical analyses that point out the changes in the market of an asset. More specifically, MACD studies the divergence and convergence of the moving average of the analyzed asset’s value.
Convergence analysis helps us to see when two lines are approaching each other. While divergence tells us when they are moving away from each other. Therefore, this indicator shows the difference between two moving averages of prices. The results in the graph are analyze in a very simple way. However, you must keep in mind that the information given by MACD has lag (it is a delayed indicator). So, the information it shows us will always be prior to the exact moment in the market.
Additionally, this indicator has three components: the MACD line, the signal line and the histogram. The MACD line and the signal line are use as oscillators and are interpret as buy and sell signals. The horizontal axis represents time. When a crossover occurs, i.e., the average lines cross, there are two possible interpretations.
- If the MACD line cuts from below the axis and exceeds the value of the signal line, this can see as a buy signal. If the opposite occurs, this can see as a sell signal.
- But, if a zero crossing occurs, it provides information of a possible reversal. But with less strength than when a crossing between lines occurs.
On the other hand, the use of a histogram allows us to read in a more detailed way. This is because it indicates the difference between the two lines and shows us information about supply and demand. At that moment, we can observe which of them has more relevance.
Bollinger Bands (BB)
Bollinger Bands measure market volatility, as well as overbought and oversold conditions. They consist of three lines: an SMA (the middle band) and an upper and lower band. The settings may vary, but typically the upper and lower bands are two standard deviations away from the middle band. As volatility rises and falls, the distance between the bands also rises and falls.
Generally, the closer the price is to the upper band, the closer to overbought conditions the asset may be on the chart. Conversely, the closer the price is to the lower band, the closer to oversold conditions it may be. For the most part, the price will stay within the bands. But, on rare occasions, it may break above or below them. While this event may not be a trading signal in itself, it can act as an indication of extreme conditions.
Another important concept in BB is known as “squeeze“. It refers to a period of low volatility, where all the bands come very close together. This can be an indication of possible future volatility. Conversely, if the bands are very far apart, a period of declining volatility may follow.
Although the indicators show data, it is important to keep in mind that interpretation is very subjective. Therefore, it is always useful to take a step back and consider decision making. The direct buy or sell signal to one trader may simply be market noise to another. In any case, the best way to learn technical analysis is with lots of practice and experience.
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