Market Indicators

Traditional & Popular Market Indicators

indicator
Too slow?
The following traditional market indicators are popular tools in almost any experienced trader’s strategy tool box.

Indicators take price information and turn it into an easier-to-grasp visual. They provide trend trade signals or warn of reversals, can be used on all time frames, and have variables that can be adjusted to suit each trader’s specific preferences.

While each indicator tells its story about the market of a digital asset, no indicator by itself tells the whole story of a market and should not be used exclusively in buy or sell decisions. Every indicator has its limits and is not fail-prove. They won’t tell you what will be (deliver magic), they can only tell you about probabilities.

Indicators may be categorized as visualizing:

  • Trend – the direction of price movement, as in upwards, downwards, and even sideways;
  • Momentum – the rate of change of price movement, as in accelerating or decelerating;
  • Volume – the sum of coins traded, regardless of sold or bought, during a given period of time.
  • Volatility – the range of price change an coin experiences over a given period of time;
  • Money Flow – the indication of buying and selling pressure based on price and volume.

Confusingly, there is a fair amount of redundancy between indicators. For technical analysis, it is best to look at one from each category, instead of only two or three from the same category.

It is also smart to approach a digital coin market by first looking at the larger, macro, or “slow” picture (monthly or weekly charts, volume, moving averages, etc.) to see if it’s a go or not, then gradually zooming in to a more detailed view (daily charts, MACD, RSI, Bollinger Bands, etc.) for specific opportunities, and ending up in micro, or “fast” views (hourly charts, Stochastics, etc.) to determine actual entry and exit positions.

A lot of folks are trend-following investors/traders. While trends are not necessarily that frequent, they can make traders a lot of money when they happen and while they last. Think of Bitcoin in the second half of 2017! Traders look at the slope and crossovers of moving averages to help identify trends.

Swing traders do their work on shorter time frames and must be keen to gauge momentum. The RSI is a popular momentum indicator in their tool box, which helps point to oversold or overbought conditions. A shift in momentum can lead to the start or end of a trend.

Volume is considered a leading indicator of changes in price action, and experienced traders pay attention to the volume’s bars and moving average. Increasing volume may bode well for an trend (up or down) as it indicates interest in an asset’s price moves; decreasing volume may forbode a time of consolidation, if not reversal.

Each trade carries with it the risk both of failure and of success. Seasoned traders consider volatility indicators because without volatility, there is just not much of a money-making opportunity.

I recommend that you read these overviews of popular indicators here on COINBUCKET.ME and then, if still curious, move on to search for and watch YouTube videos to learn even more about them.

Market Capitalization

Right off the bat, though, the most powerful indicator of the market is the market itself. What is market capitalization? It’s calculated by multiplying the price by the circulating supply. Market capitalization is one way to rank the relative size of a cryptocurrency, or the entire asset class. Crypto market capitalization is aptly reflected by the Total Market Capitalization index published by the coinmarketcap.com site.


Total Crypto Market Capitalization as of April 8, 2018. Credit to coinmarketcap.com

Enter a crypto market when the market capitalization line is moving up (and before it’s sky-high) and exit when the line is moving down. Sincerely, and with a little good fortune, investing in or trading digital coins can be that simple!

Otherwise, here is an unordered list of most everyone’s favorite indicators.

Volume

Volume
Volume is the sum of coins traded (buy and sell) during a given period of time. In other words, it is the total amount of coins in all trades that are filled whether they are buy or sell trades, during a given period of time. Joe buys 20 BTC on exchange A, and Mary sells 10 BTC on exchange B during the same time period. Volume is 30 coins.

Moving Averages

Moving Averages
The Moving Averages indicator helps traders see or confirm the direction of a trend, and also provide basic support and resistance levels.

Moving Average Convergence/Divergence

MACD
The MACD indicator and helps traders get a sense of when momentum is strengthening or weakening and determine when a trend has ended, begun, or may reverse direction.

Bollinger Bands

Bollinger Bands
The Bollinger Bands indicator helps traders to identify overbought and oversold conditions, and also is an indicator of volatility.

Relative Strength Index

Relative Strength Index
The Relative Strength Index indicator helps traders identify overbought and oversold conditions, and shows the momentum of a trend at any given point in time.

Average Directional Index

Average Directional Index
The Average Directional Index is derived from smoothed averages of directional increment movements of price and measures the strength of a trend (regardless of direction) over time.

Stochastics

Stochastics
The Stochastics indicator helps traders identify overbought and oversold conditions, and shows the speed and change of price movements.

Money Flow Index

Money Flow Index
The Money Flow Index uses both price and volume to measure buying and selling pressure.

Elliot Wave

Elliot Waves
The Elliott Wave is a form of technical analysis that traders use to analyze financial market cycles and forecast market trends. Elliot Waves identify extremes in investor psychology, highs and lows in prices, and other collective factors.

Fibonacci Retracement

Fibonacci Retracements
Fibonacci Retracements are ratios used to forecast potential support and resistance levels leading to a reversal in trending. These ratios are found in the Fibonacci sequence and can be recognized throughout nature and biology, as well as in architecture and art.

Outside-the-Box Indicators

Some of these indicators seem to be unusual, if not mysterious. But all give important clues to understanding the market.

Sentiment Cycle

sentiment cycle
My loose adaptation of the popular Investor Sentiment Cycle from Justin Mamis’ book, The Nature of Risks. Click graphic to enlarge.
Using market cycles is not a precise timing tool, but they should not be ignored. Understanding how folks react to boom and busts throughout history can give valuable insights into crowd psychology.

The investor sentiment cycle is a popular one because it shows the various emotions that many investors experience as the market rises and falls. The graph is easy to comprehend and therefore sits well with newbies and beginners alike. Read a little more here.

Bitcoin Sentiment Index

Changes in social mood precede changes in the markets, in politics and more. Understanding this insight helps you anticipate major shifts in trends before most people see them coming.

The stock market has a sentiment indicator known by its ticker symbol VIX. This is a popular measure of the stock market’s expectation of volatility and published by the Chicago Board Options Exchange (CBOE). It is also referred to as the fear index or the fear gauge.

However, and not to be outdone, the crypto market has attracted enough attention by now that some companies have developed and maintain proprietary crypto sentiment indexes.

https://news.bitcoin.com/thomson-reuters-marketpsych-launch-bitcoin-sentiment-index/

https://news.bitcoin.com/the-bitcoin-misery-index-finding-an-entry-way-with-sadness/

As a leading indicator, a sentiment index is unique and has a spot in the awareness of long-term investors.

A Last Word For Now

Not the very last word, for sure. Please know that no one indicator is the silver bullet we all wish to find in trading. Any indicator needs to be put into a proper context, preferably with a few other indicators. No one indicator can tell the whole story of a market’s or digital currency’s tend, momentum or future price action.

Sure, experienced investors and traders have their favorite indicators to the point of “swearing” by them, and even tailor their trading strategies according to what info they believe they can glean from these indicators. However, for newbies and beginners it is perhaps best to start of with the most notorious indicators and get some experience first in regard to how they work or not. Then, there is always time to refine strategies.

And if trying to figure out how indicators actually work is too laborious, even just knowing a little about them really helps with understanding the jargon with which all technical analysts and commentators converse.