While HODL is considered a popular crypto investment strategy to accumulate wealth overtime, one of the best ways to benefit from cryptocurrency is by venturing into day trading.
As the practice of rapidly buying and selling assets for short-term profit, day trading is highly popular among those who want to make regular revenues through their cryptocurrency investments.
But in order to make the most out of crypto day trading, you need detailed analytical figures on your hands. Anyone can go through past and present prices of cryptocurrencies to see the difference between them. But even as that practice tells you the comparative value, it is not enough to make well-informed investment decisions.
That’s where technical analysis comes in.
As the name suggests, the principle revolves around analyzing the market through technical indicators. These indicators go through a variety of market factors to outline the short-term and long-term viability of a tradable asset such as cryptocurrency.
In turn, they provide a holistic analysis through data visualization that covers all related aspects of a market. By looking at these findings, you are able to get a clear picture of how certain investment actions can affect you and your trading practices.
So how do you find the best technical indicators? It’s simple. By learning about them!
To help you navigate through this challenging world of trading, here are the best day trading indicators to take your rapid trading practices to the next level.
1. Moving Average (MA)
As one of the most popular day trading indicators, moving average (MA) can help you get an easy to understand picture of the price activity for your cryptocurrency.
Why Is It Helpful?
Basic charts that record every single movement of an asset’s value can make it difficult to read extensive data. This makes it challenging to discern the overtime value of an asset any time of the day. But it is especially true if you are performing day trading, where every second matters and contributes to your bottom line.
Staying true to its name, the moving average indicator can easily cut through the clutter and provide you with an asset’s average price movements. Similar to other technical analysis indicators, MA makes full use of data visualization to make it simple for you to understand the market’s state at a glance. As a result, you don’t have to waste your time doing complex calculations over price movements. You can simply look at the MA indicator to take in the information you need.
How Can You Use It?
One of the biggest advantages of moving averages comes in the form of their customization. Due to the way they are designed, these indicators can be set up through any given time frame. The usage completely depends upon you and how short-term or long-term is your trading strategy for any given cryptocurrency.
This means that you can easily set up an MA indicator for the past month, past week, past 24-hours, and even the past few minutes. The indicator quickly takes relevant market factors into account, and lets you analyze price trends in a swift manner. This makes it a sought after indicator for all types of traders.
What to Keep in Mind While Using This Indicator
Since moving averages are easy to use and widely available, they are the first stop for many day traders. But in order to enhance their efficacy, they are utilized in combination with other technical indicators. This allows crypto day traders to look through multiple avenues of a market segment, and lets them see more than basic price information for the given asset.
The process to use MA indicators completely depends upon your comfort, but it’s advisable that you try a few methodologies before you settle on something that suits your trading style and profit targets. This lets you make the most out of your day trading while also being on top of market trends for any given timeframe.
2. Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) indicator takes moving averages into account from a more detailed perspective than the MA indicator. Through their structure, they help day traders analyze market trends and signals for effective and quick cryptocurrency trading.
Why Is It Helpful?
The MACD indicator works by analyzing the Exponential Moving Average (EMA) of a market. The EMA focuses on more recent data than historical figures. By analyzing this statistic, day traders can see whether their respective market is going to follow an upwards or a downwards movement.
By looking into the data visualizations provided by MACD, you can take in a detailed picture of market trends without having to spend a lot of your time in the analysis. MACD also has clear trading signals available on its findings, which can let you make quick buying and selling decisions in a day trading environment.
How Can You Use It?
The MACD substracts the 26-period EMA from the 12-period EMA. This creates an MACD line on your chart, which is also accompanied by a signal line on top of it. This line covers a nine-day EMA of the MACD itself.
As a result, you are able to immediately analyze market movements by the use of these markings or lines. If the MACD line moves above the signal line, it indicates an optimal time to buy. On the other hand, if the MACD line goes below the signal line, it highlights a time to sell.
MACD also helps outline market movements such as crossover, which is when the cryptocurrency’s price meets the signal line. It also allows you to identify divergence in the market, which comes into effect if the crypto price is moving against other trends.
What to Keep in Mind While Using This Indicator
MACD is a highly powerful indicator that allows you to make crucial decisions at a lightning fast speed. However, working with factors such as divergence comes with its own risks. For instance, divergence could often be a temporary movement and a possible indication of price trends rather than a surefire signal to buy or sell your asset. If you take its indications on blind trust, you could end up losing on any gains you could have benefited from.
This is why, while MACD and its pertinent factors can be helpful, you should always make it a point to exercise your own judgment with them. This helps you steer clear of possible losses while also making the most out of your MACD indicator.
3. Relative Strength Index (RSI)
As another popular indication, the Relative Strength Index (RSI) is often used by various crypto day traders. As the name suggests, RSI relates to the overall strength of the cryptocurrency. It judges this status by the trading activity of the digital asset.
Why Is It Helpful?
At its core, RSI is considered a momentum indicator that goes beyond the action of recent price movements. While it registers those changes in value, it also assesses market movement factors such as the cryptocurrency being overbought or oversold.
This allows you to quickly look at your technical analysis chart to determine the market or trading strength of your respective cryptocurrency. You can then correlate this value to current price movements by using basic info or another indicator such as the MA. This can provide you with a holistic picture of the market that you are trading in. Instead of having to go through detailed charts on different websites, you can just look at your RSI indicator before buying or selling a cryptocurrency.
How Can You Use It?
The RSI is an oscillator that highlights market momentum on a scale of 0-100. Its visualization assesses and outlines the momentum for you to grasp it through a glance. Anything above 70 indicates an asset that is overbought, while anything under 30 indicates an asset that is oversold. While overbought cryptocurrencies outline a possible decline in future value, oversold cryptocurrencies indicate undervalued assets that might go up in price in the future.
RSI is mostly paired with other indicators such as the MA. These pairings help you assess the market conditions of a cryptocurrency and simultaneously relate them to its price movements or EMA. This way, you can make fast yet accurate analysis without wasting a precious second of your day trading time.
What to Keep in Mind While Using This Indicator
Since the RSI is simply a momentum indicator, it is not advisable to use it on its own and move forward with assessments that are solely based upon it. For best results, you should combine it with a stock indicator such as the MA or a trend-following indicator such as the MACD.
This helps you cover your bases from an analytical point of view and provides you with a highly reliable data visualization. In a day trading environment where every other moment could make or break the efficacy of your trading cycle, following this approach is extremely important.
4. Bollinger Bands
Bollinger bands is yet another sought after indicator for cryptocurrency day traders. Typically, it looks at a crypto asset’s standard deviations from its simple moving average (SMA) price. This gives you an idea of market volatility and price movements.
Why Is It Helpful?
The Bollinger bands indicator is helpful to understand how volatile is a crypto market for trading. It judges this status by checking if the asset is overbought or oversold. This makes it sound quite similar to the RSI indicator, but the mechanism works differently from RSI. While RSI detects future market movements, Bollinger bands report market status in real time and help you take in its current conditions to perform rapid analysis.
This makes Bollinger bands quite helpful in day trading practices, especially when you are looking to base your quick decisions on the market’s conditions and an asset’s current price relative to its average value. Due to the way Bollinger bands are structured, they also offer high accuracy and simple data visualization. Both factors help you take your day trading to the next level.
How Can You Use It?
Bollinger bands use trendlines to indicate market volatility. This includes two moving “bands” situated above and below a centerline. As the market changes its movement, the two bands either move away from the centerline or come close to it. If the market shows high volatility, the bands expand. If it has low volatility, the bands contract.
In their typical form, Bollinger bands are set with a 20-day SMA with the bands moving according to market conditions and the cryptocurrency’s price movement. However, you can also set these factors all by yourself. By understanding these market movements and their relation to an asset’s volatility, you can know exactly when to make a trade on a crypto signal.
What to Keep in Mind While Using This Indicator
While Bollinger bands are immensely helpful for day trading, they are not to be used on their own. An indicator such as moving average makes Bollinger bands work to their full potential and helps day traders get a holistic idea of the market status.
This is why, it’s important that you learn the use of indicators such as MA along with Bollinger bands to make sure you are not blindsided by any statistics. It provides you with a detailed view of the cryptocurrency you are dealing with, and lets you make highly beneficial trades in a swift manner.
Use Indicators in Combination With Each Other
Since each trading indicator fulfills a specific purpose, it is important that you use them in pairings with other indicators. As mentioned above, MA or MACD works well in combination with almost every popular indicator, but using lesser known yet still powerful pairings such as RSI and Bollinger bands can also be helpful.
The best approach is to play with different indicators and indicator combinations. This lets you get the most out of your trading practices and helps you choose the indicators which work with your personal trading methodologies the best.
However, you should always keep it in mind that learning the use of technical analysis indicators isn’t a walk in the park. It may seem immensely difficult at first, but that’s no reason to abandon the use of an indicator until you have learnt the use of it. You make an informed decision on whether or not to use an indicator only after practicing its full usage.