4 types of indicators
3 min reading
Have you ever known about tendency, momentum, volume, and volatility? It is time to find out!
4 types of indicators: tendency, momentum, volume, and volatility
Price moves in the cryptocurrency market, like those in any other market, are not random; rather, they frequently reflect long-term and short-term trends. Cryptocurrency traders apply technical analysis to try to identify and react to these trends. Traders, relying on technical indicators, place more emphasis on coin price changes than on fundamental factors. However, fundamental aspects also have a huge impact on price rates. While a variety of factors might influence the value of a cryptocurrency, technologists pay close attention to supply and demand.
What are technical indicators?
Indicators relating to financial instruments are displayed using technical indicators. Usually, they are based on price, volume, on-chain data, open positions, social indicators, or any other metric. Using technical indicators, traders choose the right moment to enter the market and make a profitable deal. Important to note, that there is no tool to guarantee a 100% profit since indicators are just helping tools. Moreover, with the help of technical indicators, traders can forecast the price movements or understand the current market situation. For now, there are available 4 types of technical indicators such as trend, momentum, volume, and volatility indicators.
Trend indicators allow you to predict the emergence of a trend and its direction. It is important to know which way the price is moving at any particular time. In the crypto market, trends are local and global. Global patterns are appropriate for medium- to long-term trading. The key goal is to recognize an uptrend when traders observe a series of higher highs, and a downtrend when they see a series of lower lows. Also, if the indicator shows that the price is above the indicated average, it is a good sign for a bull market; if the indicator shows that the price is below the stated average, it is a negative sign for a bear market. Moreover, trends include such well-known indicators as Moving Averages (Simple AM and Exponential AM), MACD, KAMA, etc. This isn’t a complete list of trend indicators. We always specify which group this or that indicator belongs to in our Academy articles.
Momentum indicators assess and demonstrate the extent of price tendencies. What exactly is market momentum? In non-scientific terminology, it is a measure of the pace at which prices change. Momentum analyzes the rate of price rising or falling. As a result, they are typically used in the short-term analysis by traders looking to capitalize on volatility surges. The trader’s purpose is to enter the market when momentum is high and leave when it is low. When volatility is low, prices tend to stay in a limited range. When volatility rises, price frequently makes a large momentum surge outside of the range. The momentum indicator is the gathered category of such indicators as RSI, Stochastic, Stochastic RSI, MACD (this one describes both trend and momentum), etc.
Trading volume is also significant in determining trends. Significant trend developments are typically accompanied by large trading volumes, while weak trend developments are typically accompanied by low trading volumes. When a crypto-asset declines in value, the first thing to do is examine the volumes that accompanied the decline. Long-term uptrends are typically characterized by high increase volumes and low drop volumes. It is also critical that volume growth maintains its speed. When trade volume falls while crypto-asset prices rise, the uptrend is likely to terminate, and vice versa. Indicators of volumes include OBV, Price Volume Trend, Volumes, etc.
Volatility indicators measure the range and speed of price movement based on an average directional value. In other words, they illustrate how quickly and in which direction price is moving in comparison to the average chart. This type of indicator is useful when you need to evaluate the volatility of an asset while prices are moving in either direction and give a range of price points based on the risk of breaking those points. As you may already know, the cryptocurrency market is extremely volatile, so volatility indicators will be quite efficient. Therefore, this category includes Average True Range, Bollinger Bands, Historical Volatility, etc.
How to use it on bit4you
The bit4you trading platform is pleased to provide its customers with the most variety of trading indicators to facilitate cryptocurrency trading. Therefore, knowing what types of indicators are, you can easily identify the best for you and build the most convenient strategy. All necessary tools you will find in the Indicators section in the trading terminal. Reading educational articles about the indicator you are interested in, you find all the information about it and how to use it on the bit4you website.
However, traders can apply a variety of indicators, and the one they select is primarily determined by their specific trading approach. To make that decision, you must first learn more about indicators, which is what this article is about.