Which technical indicators make your prediction perfect?
There are 3 important risks of bitcoin trading: emotions, speculations and instability. We must conduct fundamental and technical analysis objectively so that these risks do not affect our strategy. However, if you are new to trading or think that you are not getting enough yield from the indicators you use, you are wondering the same thing as almost every trader: Which technical indicators make your prediction perfect?
In general, we can divide technical indicators into five categories (trend, mean reversion, relative strength, volume, and momentum) and at least one indicator from each category should be included in your trading strategy.
- Trend indicators (lagging) analyze the direction of a market: moving up, down, or sideways over time.
- Mean reversion indicators (lagging) calculate how far the price wave can extend without a counter-blow.
- Relative strength indicators (leading) measure oscillations in buying and selling pressure.
- Momentum indicators (leading) analyze the speed of price change over time.
- Volume indicators (leading or lagging) tally up trades and quantify whether bulls or bears are in control.
Leading indicators (relative strength, momentum and volume) are focused on the future. Using past data and patterns, it predicts which direction it will move in the future. Lagged indicators (trend, mean reversion and volume) focus on the past. It tries to explain why the current price is at that point. We can compare these two main types of indicators to the two wings of an airplane. One is never enough.
1- Trend Indicators: EMA’s & SMA’s
Two types of analysis methods are generally used for trend analysis: Exponential moving averages and simple moving averages. Before investing in the commodity of your choice, take a look at the results of both analyzes and find out which produces more consistent results. In addition, you should take advantage of the intersection of 2 different trend charts. Experts usually perceive the intersection of the 50 and 200-day charts as a trend change, but these numbers may not be exactly the same in your commodity. That’s why you should change the days to reach the most accurate chart.
2- Mean Reversion Indicators: Bollinger Bands
Bollinger bands (20, 2) attempt to identify these turning points by measuring how far the price can move from a central trend axis (in this case, the 20-day SMA) before triggering an impulse move back to the average. Bands also narrow and widen in response to volatility fluctuations, indicating to cautious traders that this hidden strength is no longer a barrier to rapid price action.
3- Relative Strength Indicators: Stochastics
Stochastics (14,7,3) tries to predict future price movements by calculating the indicator buying and selling cycles. While doing this, it calculates the overbought and oversold levels and determines the intersections that occur. These dots herald the completion of the cycles and the start of the next cycle. This two-step verification is necessary because stochastics can oscillate near extremes for extended periods in strongly trending markets. Also, while 14,7,3 is a great setting for novice traders, it takes experimentation to find the best fit for the instrument you are analyzing
4- Momentum Indicators: MACD
Thanks to the moving average convergence divergence (MACD) indicator set at 12, 26, 9, traders can examine rapid price changes. This momentum tool calculates the speed of the market when calculating the returns. It gives an opportunity to trade to return to 0 when the histogram reaches its peak. The height and slope of the histogram are directly proportional to the opportunity captured.
5- Volume Indicators: On-Balance-Volume (OBV)
On-balance volume (OBV) measures the interest of investors in the commodity, security or market you specify. You need to measure and compare this interest with two different graphs. Observe the movements on an average of 50 days first, then target a longer or shorter term according to your trading strategy and examine the differences. In this way, you can predict the bear or bull expectation in the market.
Today, most expert traders use indicators in these 5 main categories, and in addition, they browse the data of dozens of other indicators. Imagine that you are interpreting graphics for hours on the screen every day… This is the reason why most investors prefer algorithms and digital assistants because of the health problems they will create in the near future. If your time is valuable, take a look at Coincharted.com and learn more about how many algorithms work together to determine the right strategy as we mentioned above.
