This article explores the 5 best technical indicators for crypto trading—Moving Average, RSI, MACD, Bollinger Bands, and Fibonacci Retracement—emphasizing their combination for stronger signals and diverse uses in market trend analysis.
Technical indicators are mathematical computations derived from asset prices, volume, or open interest. In this article, we discuss the 5 best indicators for crypto trading.
🍒 tasty takeaways
- Cryptocurrency traders use technical indicators borrowed from traditional markets, e.g., stocks and forex.
- The golden rule for using technical indicators is combining them to confirm stronger signals.
- There are four primary types of indicators:
- Trend indicators (MA, MACD)
- Momentum indicators (RSI, Stochastic)
- Volatility indicators (BB)
- Volume indicators (OBV)
|Moving Average (MA)
|Averages closing price over a set period; helps determine trends.
|Identifies market trend, dynamic support/resistance levels.
|Lagging; irrelevant during market shocks.
|Relative Strength Index (RSI)
|Momentum oscillator measuring price change magnitude.
|Identifies overbought/oversold levels, trend strength.
|Can give false signals in strong trends.
|Shows relationship between two EMAs; identifies momentum, trend changes.
|Useful for finding divergences, momentum and trend following.
|Lags behind price; complex for beginners.
|Bollinger Bands (BB)
|Volatility indicator forming an envelope around price action.
|Effective in both trending and low volatility markets.
|Lagging; risky as a standalone tool.
|Plots horizontal lines indicating potential support/resistance levels.
|Identifies support/resistance, useful in any market condition.
|Requires experience, involves subjectivity.
1. Moving Average
- Averages closing prices over set periods, smoothing volatility
- Popular in identifying market trends, used as dynamic support/resistance
- Includes variations like EMA for recent price emphasis; lagging nature limits effectiveness in market shocks
The moving average (MA) is the most common and oldest indicator. By default, the MA is the average close price of a crypto asset during the last “x” number of periods, e.g., hours, days, weeks.
For example, a 20-day MA shows the average closing price during the last 20 days. You can customize the indicator by replacing the closing price with the open price, high or low.
Here is what a moving average looks like on a chart:
MAs help crypto traders determine the general trend by smoothing out volatility.
There are several types of MAs. For example, the exponential moving average (EMA) gives more importance to the last price changes within the tracked period.
How to use Moving Averages
- Golden Cross/Death Cross – when a shorter MA (usually a 50-period one) crosses above a longer MA (such as a 200-period one), we call it a Golden Cross. This usually signals the formation of a long-term bullish trend. When the shorter MA crosses below the longer MA, we expect a long-term downtrend.
- Support/resistance – the MA can be used as the support or resistance level for the price action.
- Useful for determining the general market trend.
- Works well as a dynamic resistance and support level.
- Great for crypto beginners.
- The indicator is lagging, leading to late entry and exit point signals.
- It becomes irrelevant during market shocks.
- It doesn’t work when the price moves within a horizontal channel.
2. Relative Strength Index (RSI)
- Momentum oscillator fluctuating between 0 and 100
- Identifies overbought (>70) or oversold (<30) conditions, potential for trend reversals
- Effective in trend strength assessment; less reliable in strong trending or sideways markets
The Relative Strength Index (RSI) is a momentum oscillator that measures the magnitude of the latest price change, helping investors assess overbought and oversold conditions.
On a chart, the RSI is an oscillator that fluctuates between 0 and 100.
By default, the indicator measures the latest changes in the crypto price over 14 periods. It divides the average gain of the price over that period by the average loss.
How to use the RSI
- Overbought/oversold levels – if the RSI is above 70, then a market is in the overbought zone, and a potential trend reversal might occur. If the RSI is below 30, then the market is oversold. Crypto traders buy oversold and sell overbought crypto.
- Divergence – when the price and the RSI show divergence – e.g., the price goes up while the RSI goes down – you may expect a trend reversal
- The RSI is a good tool to identify overbought and oversold levels.
- Crypto traders can use the RSI to identify the strength of a trend.
- In strong trending markets, the RSI can provide false signals by remaining in the overbought or oversold levels for extended periods.
- The RSI doesn’t work well in sideways or consolidating markets. In these situations, the Stochastic oscillator is more suitable. Stochastic can used similarly, but it works differently and it uses 80 and 20 levels for overbought and oversold levels.
- Combines trend-following and momentum aspects
- Consists of MACD line, Signal line, and Histogram
- Useful for identifying momentum changes and price divergences; may lag in real-time analysis
Moving Average Convergence Divergence (MACD) can be treated both as a trend-following and momentum indicator. It consists of the following:
- The MACD line – represents the distance between two EMAs by subtracting the 26-period EMA from the 12-period EMA.
- The Signal line – represents a 9-period EMA of the MACD line itself. It is plotted on the MACD line and acts as a trigger, signaling crypto traders about the changes in momentum.
- Histogram – represents the difference between the MACD line and the signal line.
How to Use MACD
- MACD crossover – when the MACD (on TradingView, it’s the blue line) crosses the signal line from bottom to top, crypto traders open long positions. A bearish signal is valid when the MACD crosses below the signal line.
- Histogram – when the histogram is increasing in either direction, it signals the existing trend is gaining momentum.
- MACD divergences – MACD can form divergences with the price action and can be used the same way as the RSI.
- MACD acts both as a momentum and trend-following indicator.
- MACD can be used to find divergences in the price, which are powerful signals.
- Since it relies on MAs, the indicator can lag behind the current price.
- MACD is more complex for beginners.
- MACD often provides false signals during sideways (neutral) markets.
4. Bollinger Bands
- Volatility indicator with three lines forming a price-enveloping band
- Widens during high volatility, narrows during low volatility
- Effective in both trending and low-volatility markets; relies on moving averages
Bollinger Bands (BB) represent a volatility indicator, which makes it relevant for crypto traders. The indicator is made up of three lines, forming an envelope that engulfs the price and moves with it.
By default, the middle line represents a 20-period simple moving average (SMA), while the upper and lower bands represent two standard deviations from the middle line. The distance between the upper and lower lines widens during market volatility.