There are a lot of indicators that you can use for trading cryptocurrencies and most likely I will miss a bunch of them, but I am going to line up the ones that work for me. Obviously it depends on the time frames, if you are a day trader or a swing trader, but I am going to list some indicators that seem to be working for me on especially the daily chart. I look more towards daily and weekly charts, rather than hourly charts or 30 minutes charts. These indicators work best in my opinion on Bitcoin. Here it goes :
- OBV (On balance volume)
I really like this indicator, because it tells you in some form what the smart money is doing (not retail traders). If you see prices go down (as an example from now on I will use BTC), but OBV is rising, then this means that price and volume are not agreeing with each other. OBV rising means generally that prices will move up. Do keep in mind that no indicators are a 100% correct all the time and are prone to errors, but in the long run you can trust this indicator. In this case you can say that there is bullish divergence and that price should reverse rather sooner than later. The opposite can happen as well of course where OBV is moving down and prices are rising. This means likely that there is distribution taking place and that prices should reverse to the downside.
- RSI (Relative strength Index)
This indicator measures the momentum in the market and the strength of recent price changes to see overbought and oversold conditions. Above 70 means overbought and under 30 means oversold. This should generally lead to reversals, so above 70 means that we would see prices going down and under 30 means prices should rise. Do keep in mind that if you look at a daily chart for example, that this can still take days before it plays out. If you are in a bull market, momentum will be strong and it could lead to RSI being overbought for a long period of time. Same for a bear market where RSI can be oversold for a long period in time.
For me this indicator is used mostly to spot bullish divergences and bearish divergences. What is important to notice, is that the more indicators you have pointing towards a bullish divergence or a bearish divergence, the more likely it will head to a reversal. Use more than just one indicator to spot divergences !
- CCI (Commodity channel index)
This indicator works well in cryptocurrencies and also measures overbought and oversold conditions (momentum indicator). Whenever it goes above 100 it generally means it is overbought and a reversal in price is on the horizon and when it goes under -100 it means that prices could be moving towards the upside because it is oversold. Use this indicator with the RSI and OBV and if they all point towards the same thing, you have a very good chance it will happen. When momentum is strong (whether it is to the upside or downside) the line can stay above 100 or under -100 for a good while.
- BB (Bollinger bands)
Bollinger bands is an interesting indicator, because the more the two lines squeeze and get close to each other, the more likely it would be that volatility is incoming. You will also see a third line in the middle of the two lines and this one is interesting to follow as well. If prices in Bitcoin on the daily chart fall below it, it likes to test this middle line and when prices go above it, it likes to test it as well to see if it holds. If you spot bullish divergences on the RSI, OBV, etc. and you see the Bollinger bands squeeze, you can count on some volatility to the upside.
- Hash ribbons
On Tradingview.com you can find an indicator called Hash ribbons. This indicator only works on Bitcoin and can be used for several timeframes (daily and weekly seem best to me). Hash ribbons is there to spot bottoms for buying BTC and difficulty in mining BTC (miner capitulation). This indicator does not fire up often, so this indicator is more used for swing trading or long term trading where you do not enter often in a market. When this indicator fires up however, it seems to be a very lucrative trade or time to invest in Bitcoin. The Hash ribbons will show a grey circle which indicate “capitulation” and it will follow after with green circles. You can take a risk and enter already if you want, but it is better to wait for the blue circle that will indicate to “buy”. This acts as a confirmation that you can enter the market.
These are one of the most interesting indicators for me to trade. I use more indicators, but these stand out for me in terms of importance. Do not hesitate to point out other indicators in the comment section if you want !
As always this is not financial advice and I am not a financial advisor. Do your own research and make your own decisions when it comes to trading and investing.