TOP-5 technical indicators for analyzing the Bitcoin exchange rate

Billionaire Warren Buffett once said a famous phrase:

"In the business world, rearview mirror viewalways clearer than the view through the windshield. "

This means that it is easier to look back and analyze what was, than to look forward and try to see the future. In the world of cryptocurrency trading, this rule works at 100%.

The best indicators of Bitcoin also use what is in the “rear-view mirror” in order to predict with some accuracy what awaits us in the future.

Let's look at the five most popular indicators for bitcoin, which can help in predicting future changes in the price of the main cryptocurrency.

What are technical indicators?

Indicators are tools for technicalanalysis (TA), which help traders with one degree or another degree of accuracy to predict the price and direction of its movement. TA uses historical price data that was a few seconds / days / months / years ago, turning them into indicators that are easy to read; while indicators are created using mathematical methods.

Data from formulas is converted into graphic images that are superimposed on price charts or are located next to them to help traders make decisions.

Can indicators accurately predict the future?

No, indicators cannot predict the future withgreat accuracy. However, they can help the trader observe trends in order to evaluate their focus and strength. The logic of indicators is similar to Newtonian physics: price movement has an impulse, and the more it is, the more difficult it is to stop it (inertia); and vice versa. This concept is reflected in a well-known saying:

“The trend is your friend.”

Imagine there are 21 before Christmasday, and in one of the shops a fashionable toy appeared, the sales of which on the same day reached 20,000 pieces. On the next day, 25,000 toys were sold in the same store, and 30,000 were sold on the third. If you are the owner of another store and also want to buy such toys for sale, before Christmas you still have the opportunity to achieve some desired sales volume. But, if at some point you saw that the sales of your neighbors fell from 30,000 toys to 15,000, or even 5,000 a day, then you will think carefully before buying "more" of such toys.

Even being able to predict what's in your storevery successful sales of such goods will be carried out before the holiday, you will not be able to exactly repeat the sales volumes of 20,000, 25,000 and 30,000 toys per day in the same way as your neighbors did.

Indicators use formulas and graphs toto help traders “see” the future possible behavior of buyers, sellers and prices. However, they are not able to provide you with "prices of the future", calculated with great accuracy at a particular point or time period.

Main indicators for technical analysis

Consider the main indicators used in technical analysis.

Clouds of ishimoku

The Ichimoku Cloud indicator isan instrument of five lines, each of which displays average values ​​for periods of time, the total length of which can be determined by the trader. When two lines intersect, the area between them shades like a “cloud."

If the price is above the cloud, then the trend is growing, and when the price is below the cloud, the trend goes down. If the cloud is moving in the direction of the price, then the trend should be considered strong.

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Relative Strength Index - RSI

RSI is one of the simplest indicators,which indicates an overbought or oversold asset. RSI uses historical data to determine the total demand for an asset, and then calculates whether people are buying the amount of the asset that could lead to a downward price correction, or the opposite could happen.

The RSI indicator has two lines - one at the level30%, the other - at the level of 70%. When the indicator value is above 70%, then the price is likely to fall; when the value is below 30%, the price is likely to rise.

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Moving Averages - MA

When prices fluctuate upward orfall, you can misinterpret their movements as a reversal or continuation of the trend. The MA indicator (“moving average”) calculates the average price for a period of time, and also recalculates it over time.

Short periods of time have little effect on the indicatorMA, which relies on long periods of time. Looking at the graph depicting MA, you can determine the levels of support and resistance. Support is the bottom "barrier" through which the price will most likely not jump.

Resistance level is the oppositesupport level - it is also a kind of barrier above the current price level, which is unlikely to be confidently overcome. Thus, the MA indicator makes it easy to see support and resistance levels.

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Fibonacci levels

Like moving averages, Fibonacci levelsare another useful tool for predicting price dynamics. Fibonacci levels do not represent complex and interdependent calculations, but nevertheless are included in the list of indicators for the trader due to their usefulness.

This indicator allows you to operate with standardlevels 0; 23.6; 38.1; 50.0; 61.8; 76.4; 100. When a sudden change in price occurs, Fibonacci levels allow you to track such a movement and draw certain conclusions about the price behavior. Many traders believe in Fibonacci levels that resemble certain levels of self-fulfilling prophecy.

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Volume of sales

Sales volume is one of the most valuable and underestimated indicators in the bitcoin market. It shows how many people buy or sell bitcoins.

Before making a decision based on anyanother indicator, it is recommended to check the sales volume. If there is a significant price movement in a certain direction, then there should be a “momentum” of movement, behind which there are a sufficient number of people.

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The number of traders who are behind the movementprices, it is necessary to consider as "mass", which then should be multiplied by "speed" to get "momentum power". However, the less traders engage in trading at a given moment, the less “momentum”. At the same time, a smaller impulse will mean less “price inertia” - a situation where the price can easily reverse.

If you go back to the Christmas examplea toy, you can imagine the possibility of price increases by sellers from $ 50 to $ 100 in the midst of sales. However, if in fact it turns out that only five people were ready to buy it for $ 100, then the true cost of this product should be closer to $ 50.

The above mentioned bitcoin indicators can help youin making trading decisions, because what is in the “rear-view mirror” can sometimes indicate what can be seen through the “windshield”.

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