Regardless of the strategy chosen by the user, work on the exchange always follows a general algorithm: before opening a transaction, a trader evaluates the probability of a reversal or continuation of the trend, determines the moment of entry and only then places an order, writes RBC Crypto.
The result of the work depends on the accuracy of market research before starting trading. It is necessary to understand how the exchange rate will change. In addition to fundamental analysis, which includes the study of political and economic news, the trader conducts technical analysis.
It is based on the study of the history of cryptocurrency quotes. It is believed that the dynamics of the exchange rate is cyclical, and the growth and fall of demand are naturally repeated.
Indicators or special mathematical formulas help the trader to predict price dynamics. All the main indicators are calculated automatically on the trading platform. For the convenience of traders, they are located directly on the course chart or next to it.
Which indicators and signals should you pay attention to first of all
Currently, along with the development of the financial sector, the number of instruments is growing, including for the crypto market, says Artem Deev, head of the analytical department of AMarkets. In his opinion, it is better for any trader, regardless of the level of professionalism, to start and constantly use the following classic tools:
Volume of sales (volume)
Volume reflects the level of investors’ interest in the market, shows the number of transactions for a certain period of time. The Volume chart contains green and red “candles”: the first indicate a decrease in the market volume, the second indicate an increase in it. Analyzing the Volume indicator together with the price movement chart, you can confirm the trend or refute it, and predict a sharp price change: when the price chart goes up and Volume increases, this is a signal of a “bullish” market, an increase in Volume with a decrease in price indicates a “bearish” market.
Moving average (MA) analyzes the average price for a certain period. The MA chart is superimposed on the chart of the current price movement, which gives a relative idea of the price trend. If the current price of the cryptocurrency remains above the moving average for a long time, we can assume its further growth. If the real price is below the moving average, this is a signal for its decline.
Exponential moving averages (exponential moving average)
EMA is a type of moving average that gives priority to the most up—to-date data, which helps to know the trend direction more accurately. That is, it helps to forecast for the medium term.
Divergence of convergence of moving averages (MACD)
The MACD is an indicator of convergence—divergence of moving averages. A positive MACD indicates an uptrend. The tendency of the curve to the upper signal line means a good time to buy, called a bullish intersection. A negative MACD indicates a downtrend.
Relative Strength Index (RSI)
The relative strength index shows that the market is overbought or oversold. It indicates the weakness or strength of the cryptocurrency with the help of a previous change in its price. These changes indicate whether the asset has been overbought or oversold.
Fibonacci levels help to predict entry and exit points, tell the trader the moments to sell or buy an asset.
It is necessary to understand the indicators and understand what they show and what trading signals they generate. After that, all indicators will become easy for the trader, says Vladislav Antonov, a financial analyst at BitRiver. According to him, the trader first goes through all the indicators he likes, selects three of them, on the basis of which a trading system is written.
The analyst advises not to use more than three indicators, as conflicting signals will not allow you to enter the market. He explains that the simpler the system, the more profitable it is.
“It’s not a bad idea to start studying volumetric and cluster analysis right away. Indicators are good, but without volume analysis it is impossible to see the balance between supply and demand,” Antonov added.
To analyze the market, you can use the display of the graph in the form of tic-tac-toe, or in clusters, the expert reports. He explained that it is possible to build price bars by volume.
“There are a lot of tools. You can choose according to your taste and color,” Antonov concluded.
Traders often focus on moving averages, said Andrey Podolyan, CEO of the Cryptorg platform. The expert also noted indicators such as RSI, MACD, which can be used to determine overbought /oversold levels, and indicators of divergence and convergence, indicating market instability and the end of the trend.
“Volume indicators are also very important, top traders trade through specialized terminals, where the main attention is paid to the volumes entering/exiting the coin,” the expert added.
Podolyan mentioned that there are many self-written indicators. He explained that the trading terminals of exchanges and brokers are now tightly integrated with the TradingView service (a trading tool), so you can display anything on the chart.
Stock Market Impact
The same market principles work on top coins with high liquidity as on the stock/currency market, says Andrey Podolyan, CEO of the Cryptorg platform. He said that many traders working in standard markets are already actively trading cryptocurrency and, accordingly, apply the same rules.
“Cryptocurrency has a close connection with the stock market, so you can use the same methods of technical and graphical analysis,” Vladislav Antonov, a financial analyst at BitRiver, agreed with him.
According to the expert, inter-market analysis is necessary for cryptocurrency trading, as an integrated approach is needed.
“Now the cryptocurrency has a close connection with the stock market, so the dynamics of stock indices plays an important role in determining the external background to risky assets,” the expert concluded.