What are technical indicators?
Technical indicators are signals produced from the patterns observed in the movements of prices (high, low, open, close) and volumes. When they are used in an efficient way, these signals can be used to predict the future price movements. These signals can be lucrative tools for investors in the market.
Use of technical indicators in Crypto market
Bitcoin value has been historically quite volatile. Between October of 2017 to January of 2018, in a span of only 4 months, the volatility of the price of bitcoin reached to nearly 8%. This is more than twice the volatility of Bitcoin in the 30-day period ending January 15, 2020. Therefore, the use of technical indicators has great potential to turn this volatility into profitable income.
For investors, the main focus is on how to look for indicators in the historical data and use them to look for entry and exit points to conduct their trades.
In general, technical indicator can be shown on the chart, which is known as overlay mode. For examples: Moving averages, Bollinger Bands. Other type of indicators presented on oscillation fashion, which fluctuate between local maxima and local minima like MACD, KDJ, etc.
Qidax will reveal some profitable technical indicators in the following order:
1. Moving Averages (SMA & EMA) (current post)
2. Moving Average Convergence Divergence (MACD) (coming soon)
3. Bollinger Bands (coming soon)
4. RSI (coming soon)
Moving Averages:
Moving averages is one of the widely used technical analysis indicators. It is fairly simple and easy. The logic behind Moving average technical indicator is that, it smoothens the curve by filtering the unnecessary noises in it. As moving averages are based on historical prices than the actual prices, one might observe a lag in the curve emerging out of it versus the real prices curve. The commonly used moving averages are 5, 10, 20, 50, 200 day moving averages.
Moving averages consists of two major types, i.e. Simple Moving Average (SMA) and Exponential Moving Average (EMA).
Simple Moving Average:
Simple moving average (SMA) is the very basic averages or the arithmetic mean of certain number of historical prices, which implies sum of them divided by the number of periods.
Exponential Moving Average:
Exponential moving average (EMA) is a moving averages technical indicator that comprises of more steps. For the period of moving prices, the prices that are closer to the current date have more weight in the total averaging. In other words, it means that recent prices have more dominant effect over historical prices.
One of the very useful moving average tools for Bitcoin recommended by Qidax is SMA60 and EMA60. The 60 tag means average of 60 days. These configurations of SMA&EMA are very useful for medium term investor (more than 2 days)
Case study:
Between 6th to 7th July 2020, we can see that the Bitcoin price broke through both SMA60 and EMA60 line. The ideal long position entry point was at price 9100 (marked with green dot). The Bitcoin price continued to rise until late 9th July. When the price dived and crossed with the SMA60 and EMA60 lines, it signalled the exit point (short). One should close the order at 9330.
How much we earn from these transactions?
Imagine one long 1 BTC at 9100 and close at 9330, the price increment of 230 pips with 125x leverage in future contract, that would be 28,750 equivalent to 3 BTC.
Conclusion: SMA and EMA are very easy tools to get quick return when used properly.
Disclaimer. Qidax does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.
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