How to know when to buy or sell cryptocurrencies?

Cryptocurrency indicators are used to identify bullish or bearish trends, but before that, it is recommended to have prior knowledge of the basic principles and concepts of Technical Analysis, such as bar charts, support and resistance, and others.

Below, we highlight what are the best indicators for cryptocurrencies that you need to know if you want to improve your analysis:

What are the best indicators for cryptocurrencies?

Discover now the main technical indicators to follow in the cryptocurrency market.

1. Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technical indicator developed in the 1970s by engineer Welles Wilder. The RSI aims to indicate the moments when an asset is at an ideal point for buying or selling.

The RSI is an indicator that ranges from 0 to 100. The closer to 0, the better the time to buy the asset, as it has already gone through a sharp decline. The closer to 100, the smaller it is recommended to buy the asset, as it has already appreciated a lot.

The RSI is simply a mathematical representation of the “buy low, sell high” concept.

That is why it is very important to analyze the foundation of the assets first because even with the RSI very close to zero, a crypto asset can still plummet, as was the case with the fall of the Earth (LUNA) and several others.

2. Moving Average

The Moving Average is an indicator that calculates the average price of an asset based on a certain number of periods. There are several types of moving averages with different characteristics, such as Simple Moving Averages, Exponential, Weighted, and others.

Averages are very important for Technical Analysis, as their points on the chart serve as resistance and support for the price.

As can be seen in the chart below, the upward crossover of the 50-period moving average on Bitcoin’s weekly chart demonstrated, at all times, the beginning of a bull market.

3. Market value over realized value (MVRV)

Market Value over Realized Value (MVRV) is an indicator unique to the cryptocurrency market. This is because it uses on-chain indicators.

On-chain analysis consists of observing the Blockchain (the network that makes cryptocurrencies work) and user movements to obtain information, insights, and indicators about the price of a crypto asset.

The MVRV measures the current price of a crypto asset in relation to the average value acquired by investors.

The higher this ratio is, the more investors will be willing to sell. For example, if the MVRV value is 100% (or 2), if all investors sold their assets, they would make an average profit of 100%, or twice their initial investment.

Therefore, the higher the MVRV, the less recommended it is to buy a crypto asset. The smaller, the less risky the investment will be.

4. Bollinger Bands

Bollinger Bands are indicators that are based on a moving average and aim to predict the behavior of the price of an asset in view of a range determined by the average.

Example of Bollinger Bands applied to the oscillation of an asset.

Bollinger Bands can also be used as support and resistance for the price, which makes them very useful for trading. The common practice is to buy when the lower range is played and sell when the upper range is played.

A narrowing of the band indicates low volatility. After the narrowing, higher volatility is expected, either positive or negative. Therefore, it is recommended to use stops together with bands. 

5. Fair Value of BTC

There is no formula or standard for calculating the Bitcoin “fair value” of a cryptocurrency.

However, a number of companies and analysts calculate the fair price of a crypto asset by taking into account different factors.

For example, Glass node, a company focused on on-chain analytics, provides the Bitcoin: Balanced Price, which “represents the difference between the realized price and the transferred price” of BTC.

The indicator provides a nominal value for Bitcoin, and serves as a guide to whether or not the asset is close to its “fair value”.

6. Volume

Volume represents the total traded value of a financial asset over a given period of time.

For example, in the last 24 hours (01/24), around $25 billion in value was moved on the Bitcoin network, according to data from Coinmarketcap.

Observing the volume movement of an asset is very important to predict its future price. In this sense, volume is often used to confirm the trend of an asset.

A phrase often said by technical analysts is that volume precedes price. For example, if an asset is in an uptrend, and its volume starts to decrease, it means that investor interest in the asset is waning and that a reversal is likely to be near.

The opposite can also be observed. If an asset is in a downtrend or flat and its volume starts to rise, this could indicate a reversal to the upside.

7. Accumulated Aggression

Accumulated Aggression is a technical indicator that takes into account 2 factors: 

Sell ​​Aggression and Buy Aggression, and is calculated by summing all the Buy Aggression subtracted by the Sell Aggression on a given day.

Buy Aggression is all orders in the Order Book that equal or increase the price of the asset to buy, which tends to push the price higher.

When a seller accepts to buy the assets at the offer price in the Book, the aggression is selling.

This indicator has proven to be very useful for predicting price trends. A bullish move is usually preceded by a strong Buy Aggression, which tends to push the price higher. ‍

8. Bitcoin dominance

Bitcoin Dominance is an indicator that measures the total share of BTC relative to the entire cryptocurrency market. The metric is calculated by dividing the Bitcoin capitalization value by the total capitalization of the largest cryptocurrencies, multiplied by 100.

The BTC Dominance Index has been used a lot to predict the movement of altcoins against BTC. Historically, two patterns have been observed: altcoins tend to rise against BTC during the bull market, which causes dominance to wane.

However, altcoins also tend to drop more than BTC during bear markets, which increases dominance.