3 most effective indicators for Crypto trading

Cryptocurrency trading is becoming increasingly popular, and more traders jump on board daily. With this surge in popularity comes a greater need for traders to understand the market and determine the best indicators for successful crypto CFD trading.

So, let's see what are the top three indicators for successful crypto CFD trading.

1. Using relative strength index in Crypto CFDs

The Relative Strength Index (RSI) is an easy-to-use indicator for crypto CFD trading and other trading systems. It is efficient in catching loss of momentum in non-trending zones. This indicator measures the speed and change of price movements of cryptocurrencies. It also compares a cryptocurrency’ average gains and losses over a specific period.

RSI indicator’s precise measurement can guide you in determining whether crypto is overbought or oversold and helps predict potential trend reversals. An RSI reading above 70 indicates that a cryptocurrency is overbought, meaning that prices are high, and a price retracement may be expected.

On the other hand, an RSI reading below 30 indicates that an asset is oversold, meaning that prices are trading at a low level, and a price reversal may be expected. By paying close attention to the RSI reading and understanding what it indicates, you can make informed trading decisions and potentially increase your chances of success.

2. How MACD indicator works on Crypto CFDs

The Moving Average Convergence Divergence (MACD) is a widely used technical indicator in financial markets, especially in crypto CFD trading. It provides signals that can assist you in effectively timing when to buy and sell crypto orders.

The trading signals are created through two critical aspects of the MACD: the crossover of the MACD line and the signal line and the positioning of the MACD line relative to the zero line.

When the MACD line crosses above the signal line, it generates a bullish signal. This occurrence suggests that the short-term momentum is starting to outpace the long-term speed, potentially indicating a favourable time to buy crypto CFDs. Traders often interpret this crossover as a sign that the crypto price may increase in the near future.

Conversely, when the MACD line intersects below the signal line, it generates a bearish signal. This signals that the short-term momentum is weakening relative to the long-term momentum, possibly indicating a good time to sell the crypto you own.

3. Using Bollinger bands on Crypto CFDs

Bollinger Bands indicators can quickly gauge cryptocurrencies’ volatility and potential price movements. This indicator comprises three key components: a moving average (usually a simple moving average), an upper Bollinger Band, and a lower Bollinger Band.

The moving average serves as the centerline of the Bollinger Bands. It represents the average price of the cryptocurrency over a specified period. This moving average provides a baseline that helps you identify the prevailing trend in the market.

The upper Bollinger Band is computed by adding two standard deviations to the moving average, while the lower Bollinger Band is calculated by subtracting two standard deviations from the moving average.

The relationship between the two Bollinger Bands and the moving average visually represents expanding or contracting within the chart in response to the cryptocurrency’s price volatility. This will help you identify whether the cryptocurrency is experiencing periods of high or low price swings.

How to use indicators in crypto CFD trading

Using trading indicators in crypto CFD trading can help you make more informed trading decisions by analysing price data and identifying potential entry and exit points. Here’s a guide on how to use trading indicators in crypto CFD trading:

Choose a trading platform

Start by selecting a reliable cryptocurrency CFD trading platform that offers a wide range of trading indicators and tools. Ensure the trading platform is regulated and provides a user-friendly interface.

One such platform is markets.com. This platform is fully regulated in five major markets, including Europe and the UK. It has more than a decade of experience helping beginners up to experienced professional traders.

Select your cryptocurrencies

You can research the cryptocurrencies you’re interested in trading. Cryptocurrencies are highly diverse, each with unique characteristics, use cases, and price behaviour. Some factors to consider are the technology behind the crypto coin, its adoption, and its overall market sentiment.

You might also like to read: What is cryptocurrency and how does it work?

Add your chosen trading indicator

Most CFD trading platforms have various technical indicators to add to your charts. You can use the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, and more based on your trading strategy.

Adjust the indicator settings

Customise the indicator settings according to your trading strategy and preferences. For example, you can change the period length for moving averages or the overbought/oversold levels for the RSI. You may set the period to 10 or 20, which is excellent for short-time traders who want to respond quickly to price changes.

Combine multiple indicators

Many traders use a combination of indicators to confirm trading signals. For example, you might use the RSI and MACD to ensure an accurate buy or sell signal. Combining indicators can help reduce false alerts.

Learn to interpret indicator signals

Understand the signals generated by the indicator(s). Trading signals generally come in the form of buy (long) and sell (short) indications and are based on the calculations performed by the indicator.

It’s important to note that the specific signals and their meanings may differ based on the type of indicator being used. Therefore, it’s recommended to familiarise yourself with the particular indicator you’re working with to ensure a comprehensive understanding of the signals being generated.

Monitor and adapt to your crypto CFD trades

Continuously monitor your trades and adapt to changing market conditions. If necessary, adjust your indicator settings or change your strategy based on the evolving market trends.

You can stay updated with market trends by reading various news and analysis on markets.com.

Take advantage of markets.com's crypto trading indicators

In conclusion, the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Bollinger Bands are the most commonly used indicators in crypto CFD trading.

Each indicator helps traders determine the market trend, identify potential price reversals, and set entry and exit points. When used correctly, indicators can provide valuable insight into the market and help traders make informed decisions.

Hone your skills with the various trading resources available at markets.com. We offer educational content and trading tools to help you become a skilled crypto CFD trader.

Our platform provides a selection of more than 20 cryptocurrencies frequently traded by experts.

Become a member of markets.com and access a cutting-edge trading platform!

When considering "Crypto CFDs" for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.