Technical Indicators Benefits
- What Are Technical Indicators?
- Technical Indicators Benefits
- Types Of Technical Indicators
- Oscillator Indicators
- Trend-Following Indicators
- Volume and Volatility Indicators
- Relative Strength Index (RSI)
- Stochastic Oscillator
- Stochastic Oscillator RSI
- Moving Average Convergence Divergence
- Simple and Exponential Moving Averages
- Average Directional Index (ADX)
- Parabolic SAR
- On-Balance-Volume (OBV)
- Average True Range (ATR)
- Bollinger Bands
- Commodity Channel Index (CCI)
If you’re a crypto trader, staying ahead of the curve can make all the difference between financial success and missed opportunities. With the help of technical indicators, you can analyze price movements and recognize trends in the volatile crypto market. As a result, you can forecast future trends easier, and make more informed financial choices.
Here’s an overview of the importance of technical indicators and the benefits of using these indicators to develop your trading strategies.
What Are Technical Indicators
At its core, a technical indicator is a mathematical calculation based on a security's price, volume, or open interest. Using historical data, these indicators are used to analyze and predict the direction, strength, momentum, volatility, and sentiment of the crypto market. They assist traders and investors in identifying potential entry and exit points for their trades.
Learn more: What are technical indicators
What Can You Determine With The Help of Technical Indicators
Technical indicators can offer valuable insights regarding:
- Trade volumes, resistance, and support levels
- Historically persistent price fluctuations
- The impact of certain micro and macroeconomic events on the crypto market
- The intrinsic value of a crypto asset compared to its market price
- A crypto asset’s price instability over a certain time frame
- A crypto asset’s ability to perform well on the market
8 Important Benefits of Technical Indicators
- Identify entry and exit points
With the help of technical analysis, you can predict the price trends of your target stocks. This will help determine the correct time to enter or exit the market and book profits from your trades. Time charts and candlestick patterns can be beneficial when determining entry and exit points.
- Analyze market trends
Technical indicators allow you to predict future market patterns like:
- Uptrends: when the overall movement of stock prices keeps going up over an extended period. With uptrends, each successive peak (the top of the wave), as well as each trough (the lowest point of the wave), is higher than the previous one, showing a bullish market sentiment, meaning there’s a large number of buyers, leading to higher prices.
- Downtrends: when the overall movement of stock prices is constantly moving downward over a longer period. In this trend, the successive peak and trough is lower than the previous one, indicating a bearish market sentiment. The supply is more than the demand, so the number of sellers exceeds the number of buyers.
- Sideways (or Range-bound) trends: the stock prices highly fluctuate within a relatively narrow range due to the equal power of demand and supply. This situation leads to the impossibility of determining either a clear bullish or bearish direction. As a key sign of trade, the volume also remains flat, forcing many investors to stay on the sidelines until a breakdown or breakout occurs.
Based on your analysis, you can plan your trades according to these trends to secure gains.
- Understand investor psychology
Conducting technical analysis can also help you understand the psychology of other traders in the market. It can assist you in getting in-depth insights into their trading activities and the prevailing investor sentiment.
- Get valuable market information
You can collect much information through support and resistance levels, volatility, chart and candlestick patterns, etc., and get an overall understanding of market sentiment. This will help you determine whether a market is bullish, bearish, or consolidating, and take the correct positions.
- Determine target and stop loss price
As technical analysis helps predict future price patterns, you can set your target and stop loss positions accordingly. Additionally, you can set a clear-cut strategy on what you want to achieve based on a calculated risk.
- Make informed decisions
By utilizing technical indicators, traders and investors can make more informed decisions. These indicators provide valuable data points that reduce guesswork and emotional trading, leading to better outcomes.
- Risk management
Technical indicators play a vital role in risk management since they help set stop-loss orders, trailing stops, or profit targets based on the indicator values. Traders and investors can limit their potential losses while maximizing their gains.
- Understand the momentum
Understanding momentum is essential as it can reveal how a stock or market is behaving, and whether it's moving in a positive direction or not. Momentum analysis helps you gauge the strength and direction of a stock's price movement, allowing you to align your trading strategies with the prevailing trend.
For example, if you can identify strong momentum in a stock, you may want to consider buying it if it's in an uptrend.
Technical indicators are invaluable tools for crypto traders and investors seeking success in the financial markets. Analyzing the price movements of financial assets, these indicators generate signals that indicate the direction, strength, and momentum of the market.
They provide a data-driven approach to decision-making, reduce risks, and enhance overall trading performance.
For example, from the graphic below, you can identify entry and exit points provided by the Stochastic Oscillator indicator:
Values above 80 indicate an overbought signal (exit point), while everything below 20 shows an oversold trend (entry point).
Yet, keeping tabs on all these indicators from various sources can be cumbersome and time-consuming. With Altrady, you can access all the technical indicators you need in one place, without switching between different platforms or websites. You can also customize your dashboard and charts to display the indicators that are most relevant to your trading strategy and goals.