3 technical analysis strategies that help confirm winning trades
Cryptocurrency trading has evolved from a simple gambling experience to a strategic process. Successful traders rely on a combination of technical analysis, specific indicators and metrics to find high probability trades.
Before explaining three technical analysis strategies that can help confirm a profitable trade, let’s first define the key terms:
- Technical analysis is the analysis of statistical trends, so as long as the asset has historical data, technical analysis can be applied. Technical analysis involves looking at the past trading activity and price fluctuations of a crypto asset in order to understand how the supply and demand of a particular asset may affect its future price movements. By using charts to assess price trends and patterns, profitable trading opportunities could often be found.
- An indicator is a tool that helps traders make decisions in the market. Separate indicators on cryptocurrency market charts are used to measure various aspects of market activity. Ultimately, traders use them to try and predict potential future price movements.
Three indicators for crypto trading reviewed here:
- Relative Strength Index
- Bollinger Bands
- Moving Average Convergence/Divergence
The key difference lies in the strategy used to apply what these indicators point to in the market. Below are some guidelines for their use.
Relative Strength Index
The Relative Strength Index (RSI) measures momentum—whether an asset is overbought or oversold. It does this by comparing the closing price to the 50-day moving average of the asset.
If the current price of an asset is within 10% of its 50-day moving average and has been trending up for at least two days, the RSI value is considered to be above 70, which qualifies as overbought; on the other hand, an RSI reading below 30 is considered oversold.
A strong upward momentum in the RSI tends to indicate an impending rally.
Pay particular attention to this type of RSI divergence: two lows, where the first low is higher than the next low, followed by RSI, where a lower low is followed by a higher low. Such a divergence signifies a potential change in momentum, meaning that a significant upside could happen soon.
Bollinger Bands can be used to determine the relative high and low of an asset’s price over a set period using a common statistic known as the standard deviation.
By plotting bands two deviations above and two deviations below the moving average, typically over a 20-day period, traders can use historical data to compare it to the current price.
Try using Bollinger Bands to identify price action on a breakout when the price of an asset breaks out of the upper or lower bands. Prices near the extremes of these bands can be another good confirmation of a winning trade.
Moving Average Convergence/Divergence
Moving Average Convergence/Divergence (MACD) is a trend-following momentum indicator. The MACD line shows the relationship between two exponential moving averages (EMA) – the difference between the 12-day EMA and the 26-day EMA.
And finally, most importantly, there is a signal line – the 9-day EMA of the MACD line. With the MACD, traders watch the MACD line and the signal line to see if and when they cross.
When the MACD line crosses the signal line, it is a bullish indicator that informs traders of the opportunity to buy the asset as it signals a green candle is coming.
Conversely, when the MACD line crosses below the signal line, it is a bearish indicator that informs traders to sell or sell the asset. Historically, this has led to asset values falling.
Using Indicators to Confirm Winning VORTECS™ Score Alerts
The VORTECS™ Score by Cryptooshala Markets Pro is a quantitative indicator that provides an “at-a-glance” comparison of current and past market conditions for a given crypto asset.
Its AI-driven backtesting engine performs a real-time analysis of a fixed set of quantitative factors to produce a numerical score that predicts when certain assets are likely to appreciate in value: a higher VORTECS™ score means that current market conditions are optimistic, while how a lower score is bearish.
Many Cryptooshala Markets Pro traders use a specific VORTECS™ score value as an entry trigger. Many traders use a value of 75 or higher as 75 is the value at which the VORTECS™ line turns green on the Cryptooshala Markets Pro platform.
However, there is a potential hurdle here: while the VORTECS™ assessment offers institutional-level insight into potential asset movements, its predictability can be greatly improved when combined with confirmation from the indicators discussed above.
This principle is inherent in trading, not VORTECS™ rating: the more arguments in support of a trade idea, the higher the probability that it will be a winning one.
For Cryptooshala Markets Pro traders who see the VORTECS™ 75 score as a potential entry trigger, here is how the indicators above can be used to confirm trading opportunities:
1. Using the MACD as a trigger confirmation for the VORTECS™ Score on ETH/USD.
On January 10, 2021, ETH/USD VORTECS™ reached 81, prompting an entry setup. Examining the price movement on the chart shows that the trigger was preceded by the fast MACD line crossing the signal line, which is a bullish indicator.
Using the MACD as a confirmation tool, astute Cryptooshala Markets Pro traders could use the VORTECS™ Score trigger to capitalize on what kicked off ETH’s 2021 bull run.
2. Using the RSI as a confirmation trigger for the VORTECS™ Score on DOT/USD.
On September 21, 2021, the DOT/USD VORTECS™ reached 75, prompting an entry setup. Checking the price movement shows that DOT/USD has just shown a bullish RSI divergence signal:
DOT/USD made lower lows (indicated by the sloping blue horizontal line on the price chart), while the RSI made higher lows (indicated by the sloping blue horizontal line on the RSI chart).
Using RSI as a confirmation tool, astute Cryptooshala Markets Pro traders could use the VORTECS™ Score Trigger to capitalize on Polkadot’s (DOT) close to 100% move in two months.
3. Using Bollinger Bands as a trigger confirmation for VORTECS™ Score on DOT/USD.
Alternatively, traders using Bollinger Bands could also use this indicator as a confirmation of the VORTECS™ Score trigger on September 21, 2021.
The DOT price chart shows that it dropped below the lower boundary of the Bollinger Bands on the same day that the VORTECS™ indicator was activated, giving immediate bullish confirmation for the trade.
Markets Pro by Cryptooshala gives traders easy access to institutional grade tools such as VORTECS™ Score triggers and traditional technical analysis. Together, they can be the building blocks for creating high-quality, high-probability trades.
See how Cryptooshala Markets Pro provides market movement data before it goes public.
Cryptooshala is a publisher of financial information, not an investment advisor. We do not provide personalized or customized investment advice. Cryptocurrencies are volatile investments and come with significant risk, including the risk of irreversible and complete losses. Past performance is not indicative of future results. Figures and diagrams are correct at the time of writing or otherwise indicated. Live tested strategies are not recommendations. Before making financial decisions, consult with your financial advisor.
All ROIs shown are valid as of February 14, 2023…
Credit : cointelegraph.com