Cryptocurrency trading has evolved from the perception of simply being a game of chance to a strategic process. Successful traders rely on a combination of technical analysis, specific indicators and metrics to find trades with a high probability of profit.
Before explaining the three technical analysis strategies that can help confirm a winning trade, let’s first define the key terms:
- Technical analysis: This is about analyzing statistical trends, so whenever an asset has historical data, technical analysis can be applied. Technical analysis involves looking at past trading activity and price movements of a crypto asset, with the goal of understanding how supply and demand for a specific asset could influence its future price changes. By using charts to assess price trends and patterns, it has often been possible to find profitable trading opportunities.
- Indicator: It is a tool that helps traders make decisions in the market. Selected indicators on cryptocurrency market charts are used to measure different aspects of market activity. Ultimately, they are used by traders to try to predict possible future price movements.
The three indicators for cryptocurrency trading examined here are:
- Relative Strength Index
- Bollinger Bands
- Moving Average Convergence/Divergence
The key distinction lies in the strategy used to apply what these indicators signal to the market. Here are some best practices on how to use them.
Relative Strength Index
The Relative Strength Index (RSI) measures momentum, that is, whether an asset is overbought or oversold. It does this by comparing the closing price to the asset’s 50-day moving average.
If the current price of an asset is within 10% of its 50-day moving average and has been trending higher for at least two days, the RSI reading is considered to be above 70, qualifying as overbought. ; on the other hand, an RSI reading below 30 is considered oversold.
A strong bullish momentum from the RSI tends to herald an imminent rally.
Look specifically for this type of RSI divergence: two lows, where the first low is higher than the next low, followed by an RSI where a lower low is followed by a higher low. Such a divergence signifies a potential shift in momentum, which means a sizable rally could be in the offing soon.
Bollinger Bands
Bollinger Bands can be used to determine the relative high and low price of an asset over a given period using a common statistical metric known as standard deviation.
By drawing bands two deviations above and two deviations below a moving average, typically a 20-day, traders can use historical data to compare with the current price.
Try using Bollinger Bands to identify breakout price action when the price of an asset moves outside of the upper or lower bands. Prices near the ends of these bands can be another good confirmation of a winning trade.
Moving Average Convergence/Divergence
The Moving Average Convergence/Divergence (MACD) is a momentum indicator that follows the trend. LThe MACD line shows the relationship between two exponential moving averages (EMAs): the difference between the 12-day EMA and the 26-day EMA.
Lastly, and most importantly, there is the signal line, a 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 intersect.
When the MACD line crosses above the signal line, it is a bullish indicator that informs traders to consider buying the asset, as this indicates that a green candle could be coming.
Conversely, when the MACD line crosses below the signal line, it is a bearish indicator that informs traders to consider selling or shorting the asset. Historically, this leads to a fall in the value of the asset.
Using Indicators to Confirm VORTECS™ Score Winning Alerts
Cointelegraph Markets Pro’s VORTECS™ Score is a quantum-style indicator that provides a “snapshot” comparison between current and past market conditions for a given crypto asset.
Its AI-powered backtesting engine performs real-time analysis on a fixed set of quantitative factors to produce a numerical score that predicts when certain assets may rise in price: a higher VORTECS™ Score means that current market conditions market are bullish, while a lower score is bearish.
Many Cointelegraph Markets Pro traders use a certain value of the VORTECS™ Score as a trigger for an entry. Many traders use a value of 75 or higher, as 75 is the value at which the VORTECS™ line lights up green on the Cointelegraph Markets Pro platform.
However, there is a potential hurdle: While the VORTECS™ score provides institutional insight into potential asset movements, its predictability can be greatly improved when combined with confirmation of the indicators mentioned above.
This principle is inherent in trading more than it is in the VORTECS™ Score: the more arguments that support a trading idea, the more likely it is to be a winning trade.
For Cointelegraph Markets Pro traders considering a VORTECS™ Score of 75 as a potential entry trigger, here is how the above indicators can be used to confirm trading opportunities:
1. Use the MACD as confirmation of a VORTECS™ Score shot on ETH/USD.
![3 Technical Analysis Strategies That Help Confirm Winning Trades 3 Technical Analysis Strategies That Help Confirm Winning Trades](https://s3.cointelegraph.com/uploads/2023-02/2898674a-3e2f-4054-a66c-0cdd9a273bf4.png)
On January 10, 2021, the VORTECS™ Score on ETH/USD reached 81, triggering an entry setup. An inspection of the price action on the chart shows that the trigger was preceded by a fast MACD line crossing the signal line, a bullish indicator.
![3 Technical Analysis Strategies That Help Confirm Winning Trades 3 Technical Analysis Strategies That Help Confirm Winning Trades](https://s3.cointelegraph.com/uploads/2023-02/1e89a48d-030e-4ebd-86df-290a561d31b0.png)
By using the MACD as a confirmation tool, astute traders at Cointelegraph Markets Pro could have used the VORTECS™ Score trigger to capitalize on what was the start of the 2021 bull run for Ether (ETH).
2. Use RSI as confirmation of a VORTECS™ scoring trigger in the DOT/USD pair.
![3 Technical Analysis Strategies That Help Confirm Winning Trades 3 Technical Analysis Strategies That Help Confirm Winning Trades](https://s3.cointelegraph.com/uploads/2023-02/8440c572-c0ed-4522-8cfe-30ae06554ee1.png)
On September 21, 2021, the VORTECS™ Score in the DOT/USD pair reached 75, triggering an entry setup. An inspection of the price action shows that the DOT/USD pair had just shown a bullish divergence signal from the RSI:
The DOT/USD pair had made lower lows (indicated by the sloping blue horizontal line on the price chart), while the RSI had made higher lows (indicated by the sloping blue horizontal line on the RSI chart).
By using the RSI as a confirmation tool, astute Cointelegraph Markets Pro traders could have used the trigger of the VORTECS™ Score to capitalize on a nearly 100% move for Polkadot (DOT) in two months.
3. Using Bollinger Bands as confirmation of a VORTECS™ Score trigger in the DOT/USD pair.
![3 Technical Analysis Strategies That Help Confirm Winning Trades 3 Technical Analysis Strategies That Help Confirm Winning Trades](https://s3.cointelegraph.com/uploads/2023-02/9c943be9-9725-460d-9282-3a9345a20cb5.png)
Alternatively, traders using Bollinger Bands could have also used the indicator as confirmation for the activation of the VORTECS™ Score on September 21, 2021.
The DOT price chart shows that it fell below the lower limit of the Bollinger Bands on the same day that the VORTECS™ Score was triggered, providing immediate bullish confirmation for the trade.
Cointelegraph Markets Pro provides traders with easy access to institutional-grade tools like VORTECS™ Score triggers and traditional technical analysis. Together these can be the building blocks of creating high quality, high probability trades.
Find out how Cointelegraph Markets Pro provides data on market movements before this information is made public.
Cointelegraph is a publisher of financial information, not an investment adviser. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk, including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and graphs are correct at the time of writing or where otherwise specified. Tested strategies do not constitute recommendations. Consult your financial adviser before making financial decisions.
All returns quoted are correct as of February 14, 2023…