Technical analysis is a reliable assistant in cryptocurrency trading, without which you can’t do without. There are thousands of indicators, based on which crypto traders develop their own strategies.
Most of them may be difficult to understand for beginners. But there are also effective strategies that have gained great popularity among novice traders due to their simplicity.In this article, we will talk about such strategies, which will not be difficult to understand for a beginner, but at the same time they will help in trading.
How to use indicators
Technical indicators reflect real market indicators and help to identify key support/resistance levels, overbought/oversold, trend direction and much more.
With the help of indicators, crypto traders can find optimal market entry points and receive signals to buy and sell cryptocurrency with a certain accuracy.
Traders create their own strategies based on indicators. As a rule, indicators are combined for more accurate signals so that the trader can see a more comprehensive picture of what is happening in the market. This eliminates unnecessary noise and allows you to extract the necessary information faster and better.
As a rule, crypto exchanges’ terminals contain preconfigured basic indicators that a trader can use in his trading, such as SMA (moving averages), MACD, Volume and others.
For example, Binance charts have 3 moving averages with different periods and a Volume indicator pre-installed.MA indicators smooth out price fluctuations and calculate average price values, allowing you to understand which way the trend is currently directed. And the Volume indicator reflects the current market activity: whether buyers (bulls) or sellers (bears) prevail.
Traders can independently add, delete and customize the necessary indicators according to their individual preferences in trading. But for beginners, the standard settings will be enough – they are recommended by the creators of these indicators and are often used by professional traders. As you gain experience, you will learn how to customize the parameters for yourself. Next, we will consider popular trading strategies and explain how to use them in crypto trading.
Scalping
Scalping is not the easiest strategy for beginner crypto traders, but with proper risk management it can bring good results. The essence of scalping is to make many trades during the day to get a small profit of up to a few percent. However, cryptocurrencies are highly volatile assets, and their price during one day can change by 10% to 50% or more. But this carries increased risks for traders, especially beginners.
How to trade
This means that it is important for a trader to determine at least two key parameters: support/resistance levels and trend direction. With the help of support and resistance levels, a trader can determine when it is best to open/close positions. When the price bounces off the lower boundary, it is a buy signal, and a bounce off the upper boundary is a sell signal.
Special attention should be paid to moving averages. MA crossing can indicate both local and global change of trend. The Volume indicator will additionally help to form a picture of the market and indicate bearish and bullish divergence. For example, if the indicator displays red, but on the chart it is green, it indicates that the strength of the bears is running out and the price is preparing for a breakout.
What indicators to use
Since you need to determine the trend direction and key support and resistance levels, trend indicators, as well as volume and momentum indicators are suitable for trading:
- SMA;
- MACD;
- Parabolic SAR;
- RSI;
- Volume.
The trend can change at any moment and it is impossible to predict it. Therefore, it is important to make sure that trend indicators keep their direction.
Tip. Binance and many other popular platforms use charts of the popular Tradingview service. To add an indicator to a chart, you need to click on it with a mouse click and start typing the indicator name in the field. Then select the desired indicator in the displayed list.
Trend Trading
Another popular strategy among novice traders is trend trading. In this case, you need to determine in which direction the price is moving at a given time. Trends can be local and global. Global trends are suitable for medium and long-term trading.
How to realize that the trend is uptrending
During an uptrend, the price moves in a narrow channel and may slightly go beyond its limits. As a rule, each local minimum is higher than the previous one. The same is true for local highs.
How to trade
So, when you have determined that the trend is directed upwards, it is necessary to identify the key support and resistance levels – we will start from them. Accordingly, the support zone will be suitable for opening long positions, and the resistance zone – for closing.
As you can see in the picture, the price of cryptocurrency fluctuates in a narrow corridor. And the local minimums and maximums are higher than the previous ones (in the screenshot, the minimums are marked with white horizontal lines).
In a downtrend, the signal to start trading will be the breakdown of the resistance level. However, sometimes the breakdown may turn out to be false. If the price after the breakout quickly rolled back and returned to the initial position, it may indicate a false breakout. At this time, it is better to wait for a clear trend to emerge. We will talk more about the strategy based on the breakdown of levels in the next paragraph of the article.
What indicators to use
Since the strategy under consideration provides for trend trading, it is logical to use trend indicators:
- MA (SMA, EMA, etc.);
- Stochastic RSI;
- MACD.
Breakout of resistance level
This strategy is used when a new trend has not yet formed, but the breakout of a key level may indicate its change. During a certain period of time, the price may bounce from support and resistance levels for a long time.
But sooner or later, the market forces shift to the other side: the price cannot move only in one direction. When the rate grows significantly, the buyers weaken and the bears actively join the game. The opposite is also true.
How can you tell if the trend is about to change?
When approaching this point, the amplitude of the price begins to decrease, that is, the price is in a sideways movement or flat. The beginning of the uptrend can be indicated by the breakdown of the resistance level. Before that, sellers “push” the price closer and closer to the resistance level.
One of the characteristic signs of a trend change can be observed when the resistance level practically does not change, and the support level approaches it, closing the chart in the form of some semblance of a wedge. At a certain moment the resistance level is broken and the price starts to grow, indicating the emergence of a new uptrend. At the same time, it is important that the price does not immediately roll back to the previous level – this phenomenon is called a false breakdown.
How to trade
There is no need to hurry and open a position immediately after the price broke above the resistance level. It is necessary that the condition is fulfilled: the new support level formed should not be lower than the previous resistance level. In this case, you can open a long position and then trade on the trend.
What indicators to use
Again, trend indicators are suitable here. But in addition to them it is better to use momentum and volume indicators. The list of suitable indicators for key level breakout strategy:
- MA (SMA, EMA, etc.);
- RSI;
- Parabolic SAR;
- Volume.
Strategy on MACD
MACD (moving average convergence/divergence) is one of the most popular and simple indicators in trading. The simplicity of its use is the reason why the indicator is so popular.
How to trade
The signal to buy cryptocurrency will be the crossing of the fast and slow MA lines below the MACD zero level. At the same time, the fast moving average should cross the slow MA from bottom to top – this is what signals the price reversal to growth.
The signal to sell, respectively, will be the crossing of the slow MA from top to bottom. It is not necessary for this crossover to be above the MACD zero level.
What indicators to use
As we wrote earlier, two basic indicators with standard settings are enough for this strategy:
- MA (included in MACD);
- MACD.
Crypto arbitrage
Not all trading strategies can be based on indicators, although they can imply their use as an additional tool. During periods of high volatility in the crypto market, there is often a difference between quotes on different exchanges and in different trading pairs. The difference between quotes can reach 5% or more.
Types of cryptocurrency arbitrage
There are two main types of crypto arbitrage:
- Inter-exchange;
- Intra-exchange.
Inter-exchange arbitrage works like this:
- You buy cryptocurrency on the first exchange at a lower price.
- Transfer the coins to the second crypto exchange.
- Sell at a higher price.
In this case, you need to calculate the commissions when withdrawing cryptocurrency from the exchange and for the exchange. In addition, there are still risks that the rate of cryptocurrency will change sharply in a period of high volatility, and you will not only lose profit, but also incur losses. This is especially true for cryptocurrencies such as Bitcoin and Ethereum: their blockchains have expensive and slow transactions that can take up to an hour or more to complete. During this time, the exchange rate can change dramatically.
Intra-exchange arbitrage involves the use of an intermediate trading pair within a single exchange. The exchange rate in different pairs can also vary widely. An example of intra-exchange arbitrage:
- Exchanging BTC for ETH;
- Buying LTC for ETH;
- Selling LTC for BTC.
It turns out to be a kind of triangle. In this case, the profit is made due to the price spread. As a rule, the higher the liquidity, the lower the spread. But such pairs as LTC/ETH or BTC/LTC are less liquid, so the spread can be much higher, which opens good opportunities for crypto arbitrage. But with lower liquidity, orders can take longer to execute, which is the main risk of intra-exchange arbitrage.
These are just some of the trading strategies that beginners use.
There are many equally popular trading strategies based on the Bollinger Band, Fibonacci levels, Parabolic SAR and other well-known indicators.