1. a) In your own words, explain Technical indicators and why it is a good technical analysis tool.
b) Are technical indicators good for cryptocurrency analysis? Explain your answer.
c) Illustrate how to add indicators on the chart and also how to configure them. (Screenshot needed).
2. a) Explain the different categories of Technical indicators and give an example of each category. Also, show the indicators used as an example on your chart. (Screenshot needed).
b) Briefly explain the reason why indicators are not advisable to be used as a standalone tool for technical analysis.
c) Explain how an investor can increase the success rate of a technical indicator signal.
With the help of technical indicator a trader can decide whether he should make trade in market or should he leave it. Technical indicators are.
- Logging indicator
- Leading indicator
By studying the technical analysis we can understand the price detail and fluctuation in price in the past and in present. Because with the help of old market trends we may predict the future price. But as we are entering in the Crypto market which is highly volatile we may take an example of Bitcoin whose prices fluctuate in a high rate. These trends will not give us complete guarantee that we will set profit but this will help us to predict the upcoming trends of the market.
These trends will create chart that act as a toll which generate signals and shows that weather something should be buy or sell.
- Technical analysis is the study of price movement on financial chart.
Technical indicators are very useful in such a way that these help us to predict whether the price of assest will drop or rise. This will help you to established up and down trends
- ADX (Average Directional Movement)
- ATR (Average True Range)
- MFI (Money flow index)
- DEMA(Double Exponential Moving Average)
You should not enter in the market without knowing any basic analysis such as fundamental indicators and technical indicators. If you blindly invest in the market you will lose your assets. So before investing in the market you should have a little bit knowledge about the trends and the price movement of the market this all can be understood by knowing the technical analysis and Technical indicators.
- According to my point of view technical indicators are good for Crypto market. These will helps you to predict the market trends.
- It will help you to predict future price movement based on past price movement.
- it helps you to buy low and sell high.
- Most of the time,history in case of trends repeat itself so technique analysis helps you in this way also.
- Technical indicators are also good for short term market trading in order to predict movement of price.
One thing kept in mind technical analysis is not a complete system it is only a part of the system. You should not completely rely on it. As I discussed that Crypto market is highly volatile market and price may fluctuate at high rate at any time. So we should take some basic information about trends and price from technical analysis but should not completely rely on it.
For this purpose 1st of all go to the site trading view and make your account on Trading view.
Then explore its different options and click on the chart that is shown below
Then the icon known as fx indicator is shown click on it
Here the indicators and strategies are shown then click on the built-in to show all the indicators
Then the specific indicator is selected as I select the Arron indicator as shown below
As just we select the indicator it is applied on the chart and complete chart is shown to us where selected indicator is applied
After that click on the three dot and it will shows the option settings. Where we can make the settings
There are different options
In the sittings there are different options are shown such as
- Last price line etc
We can make settings in frim here of the chart of indicator
Volume indicator are used in trading and these indicators are mathematical formulas. Each indicator used a slightly different formula and therefore we should find the Indicator that work best for our particular market approach.
- your aim is to find the volume indicator that suits your particular market approach.
Volume indicators are not 100% required but they can help you a lot in your trading decisions. There are a lot of volume indicator such as
the most common of all volume indicator is average volume. And the calculation most commonly used for stock market is 50 days. . It is also considered good to use same period of the price as average that was used before.
On balance volume indicator
On balance volume indicator was created in the early 1960 by Joseph Granville. It works on the theory that volume proceed price movement. Suppose that if close of the price is higher than the close of previous bar then we take the volume from that period of the time and added it to previous value of unbalanced volume.
And if close of the price is lower than the close of previous bar then we take the volume from the previous of time and subtract it to the previous value of unbalanced volume.
Momentum based indicator
Momentum indicator measure amount price of security changes over time. The speed at which the price advance or decline a market where the price differential is changing with larger price jump during the period on the indicator we would consider that increasing momentum. If the price is changing with small jump then momentum is decreasing.
- Momentum based indicator = (Price today/price n period ago)/100
Relative strength indicator
Relative strength indicator is mostly used to measure momentum in the stock market and it is an oscillating indicator. Investor used this indicator to help identify whether the stock is overbought or oversold. By using this information it could help to determine potential entry or exit trading signal.
- RSI = Average gain/average loss
Relative strength index value plotted in graph between 0 to 100. Overbought of the stock that has increased rapidly in short period of time and may reverse lower. Oversold refer to stock that has decreased sharply in short period and reverse higher. RSI value between 30 is considered good if it cross about 30, generates what some tech trader generally considered as a potential bullish entry signal.exit signal work on a same way except investor use overbought signals. RSI above 70 overbought the investor considered it a sign of selling the things.
Volatility based indicator
Volatility indicator can help you trade more effectively knowing your expectation in check. Volatility is a finance representation by standard deviation compared from the past price.it means fast the price it will increase the volatility there are 2 types of volatility,historical and implied. Most of them use historical Trading environment. Bollinger's band refer to the the price changes and fluctuations placed on a chart represent a volatility.
Volatility based indicator are used to check the market whether the market is up or down. In simple words we can say that it checks the swing and fluctuations of market. High and low volatility is based on the fluctuation in the price if the price fluctuate More means higher volatility and prices fluctuate low means low volatility.
Indicators are good in order to check some basic information and to check the past trends of market. But we cannot completely believe on indicators as I mentioned above that indicator are not the complete system it is just a part of the system. So if you use indicator as standalone tool you are at a risk of losing your assets.
As the cryptocurrency is highly volatile so sometime trends are irregular and indicator cannot predict them in a correct way. So in this case if someone believe blindly in an indicator, he is just fool who wants to lose his assets.
You should not use single indicator to know about market trends and price fluctuation. The combination of two or more indicator may use. Sometime trends unable to give correct information due to inconsistency. And also sometime single indicator produce false signals and it will make your assets at risk.
You should use combination of two or more indicators but not a single indicator as standalone tool
There is a large number of indicators that are present but we should be wise in using these indicators. We should have an idea about the overbought and oversold assets in the market. When there is overbought condition is more in the market means that there is more appropriate for the trader and when there is oversold condition it means there is a loss for the trader and it's time to leave or exit the market. We must be clear in understanding the different indicators.
If we are making a chart of different indicators we should use such kind of colours that are easily understandable for us. Before entering into the the market, we must have a complete information about the indicators and we must do some practice for understanding these indicators. As the success of an investor is totally depend upon how much indicator understandable to him and how much gripped he has on the indicators. There should not be a single indicator used to predict the trend. we must use the combination of indicators in order to achieve the success.
So in this lecture we have learnt a lot about the technical indicators and their importance. As in the cryptocurrency technical indicators are very useful in order to predict the market trends. There are different kinds of Technical indicators are in the market but investor should be wise in choosing that indicator which is beneficial for him. The most important thing that we understand in this lecture is that we should not believe blindly on the indicators as no indicator is 100% correct.
Another thing that should be keep in mind that we should use a combination of two or more indicators it will reduce the false information that may come by using a single indicator. We also learnt how to to add a indicator on the chart. It is good to understand how we can make profit by working as an investor in the market. We should struggle in understanding these technical indicators and should have a better grip on it to make a good profit in the market.