While using an automated cryptocurrency bot, one of the most important factors is making decisions through technical analysis.
There’s a very good reason for it.
It’s because technical analysis allows you to read patterns in market movements that are otherwise not visible to the naked eye. This helps you make trading decisions that are backed by historical data, and increases the chances to make potential profits through your regular activity.
In order to get an edge over those who are performing trades without the help of advanced technology, most cryptocurrency traders use these technical analysis indicators to fuel their decisions. Some of them often pair these indicators with automated trading bots to bring much needed accuracy to an easy way of buying and selling cryptocurrency for increased profits.
To make sure that you are benefiting from all the tools that make cryptocurrency trading more successful, here is all you need to know about using technical indicators with trading bots.
What Trading Indicators Are Bots Using?
Crypto bots use a number of indicators, which can help you trigger buying and selling actions that are relevant to respective strategies. This way, your bots can make targeted decisions that have more chances of earning profit.
Typically, technical indicators for trading platforms are segmented into 4 different categories. Since these categories are not limited to cryptocurrency trading and also apply to general asset trading, they are very popular among the community.
These categories include:
While each cryptocurrency bot can use different indicators, most of them make it a point to utilize at least one indicator from each of these types. This gives these bots a way to ensure accurate analysis and execute profitable strategies.
In order to use these indicators with your bots the right way, it is essential that you learn about them and how they work in the first place.
Thankfully, knowing more about the most popular indicators is not that difficult. All that you need to benefit from these mechanisms is to dedicate some time towards understanding them. From there, you can use these indicators to your own benefit and use them with applicable bots easily.
With that essential introduction, here are the most popular indicators to use with your cryptocurrency trading bots.
As the name suggests, the Volume indicator analyzes a market’s trading volume overtime and gives you insights on how great an asset is doing among buyers and sellers.
A higher trading volume indicates favorable conditions and often refers to assets that can be bought and sold without a significant drop in price. Whereas, a low trading volume may often lead you to buy assets that are difficult to be sold, but which often come at a lower price.
With that being said, a lower volume is not always indicative of a lower price. This makes the volume indicator a great reference point but not the absolute North Star of how you should go about your trading. But it is still a great indicator in determining long and short positions with your investments.
One of the most popular volume indicators is “On-balance volume (OBV),” which refers to a market’s volume to indicate changes in retail price.
This one is also self-explanatory. Simply put, the Volatility indicator refers to when a market is more volatile. This indicator analyzes its eponymous dynamic trait in a market by analyzing its price and volume overtime.
A higher volatility poses more risks on a market, but it also makes it more lucrative for buying and selling assets. It’s because price volatility leads to a higher number of opportunities and increases your chance to make profit through long or short positions.
On the other hand, a lower volatility on a market provides you with an asset that’s mostly stable on its price. It is a very good thing if you just want to make small-time profit that’s not much to write home about. But it’s indispensably restrictive if you are trying to earn higher profits through your cryptocurrency trades.
One of the most popular indicators of volatility is Bollinger Bands (BB), which is almost universal in all credible crypto bots. By using three lines that refer to market average as well as higher and lower volatility in comparison, you can make your trades in line with market conditions.
The Momentum Indicator may sound a bit more complex than the simplicity of the volume or volatility indicators. But once you learn about it, you might use it in almost every trade you make.
In its simplest definition, the momentum indicator uses an asset’s recent closing price to its past closing price in a given time period. By this simple yet effective design, the momentum can give you an accurate history of price changes that you can use while making future trades.
Due to its mechanism, the momentum remains one of the most important factors in analyzing the health of a market. It’s also what makes it a popular indicator for traders of all kinds, whether they are looking for long term investment or day trading.
In cryptocurrency trading, the momentum indicator is particularly important due to the highly fluctuating nature of the digital asset market. When you use it with a bot, the trading indicator can give you an instant insight into your given market.
One of the most popular momentum indicators is the relative strength index (RSI). It analyzes recent price changes to determine overbought or oversold conditions in the respective asset.
The Trend Indicator is also a bit difficult to decipher on face value. But it is simple to understand through a straightforward definition.
The trend indicator follows past movements of a market across a variety of conditions and periods in order to identify specific trends in movement and price.
Trends mostly follow moving averages, which are harder to track through manual tracking but provide tremendous insights when used with automated trading tools.
With that being said, different trend indicators use their own mechanisms to identify these movements. At the same time, they all serve the same goal of not looking at the market from a single point-of-view.
By using different trend indicators with your cryptocurrency bots, you can easily stay on top of market conditions that are otherwise not as recognizable through the other types of indicators mentioned on this list. This gives you a multifaceted approach to trading that is not always on the table for usual traders.
One of the most popular trend indicators is moving average convergence/divergence (MACD). By following two moving average prices for the same asset, MACD provides a unique yet accurate insight into markets that remains unmatched by many other indicators.
Due to the way the MACD is designed, it can also be identified as a momentum indicator. That’s why, you can often find this double-indicator within the momentum indicator section of many trading bots.
Which Kind of Indicators Should You Use?
When it comes to cryptocurrency trading mechanisms, especially those executed through automated bots, going with a single indicator is not favorable.
That is why, it is essential that you use a mix of indicators to gain insights and give your crypto bots the means for profitable buying and selling transactions.
By testing a few indicators against your trading strategies, you can ensure to find the right balance that works for your current style. From there, you can continue modifying these trading indicators in order to evolve along with market conditions and stay profitable in the long run.