The Top Technical Analysis Tools for Crypto Traders

The Top Technical Analysis Tools for Crypto Traders
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Crypto traders and chartists have loads of indicators, drawing tools, data visualization, and aggregation sources. Charting software they can add to their toolkit to help them trade and invest.

Some tools and indicators use price history. Others consider trading volume, and some track momentum or even social sentiment. Traders often use these tools together or in different combinations to achieve their desired results.

Here, I’ll share some of the top technical analysis tools for cryptocurrency technical analysts and traders you’ll need to know to get started.

The Best Cryptocurrency Technical Analysis Tools for Beginners

The top tools for crypto day traders include charting tools and software that assist the trader in analyzing market conditions from near-infinite angles. They’ll help with discovering market patterns and trends, and tracking or creating signals to buy or sell.

Traders will encounter two primary categories of charting tools – Overlays and oscillators.

Overlays are technical indicators that plot on top of prices on a chart. Some of these include Fibonacci tools, Bollinger Bands, and the Ichimoku Cloud.

Oscillators are plotted separately from the price chart and oscillate between the minimum and maximum parameters. Common examples include RSI and MACD.

Crypto traders typically use multiple indicators together, including oscillators, overlays, and drawing tools.

With so many variable technical indicators available, traders in cryptocurrencies typically start with the basics and then begin experimenting. Over time, a seasoned cryptocurrency trader develops a unique toolbox focused on their trading style.

Trading styles are often a combination of searching for chart patterns, fundamental analysis, and monitoring the news and social buzz. Traders can incorporate all technical analysis tools and indicators we discuss here into automated trading systems.  Access to the code, data, and APIs may be needed, though not always.

On-Balance Volume Indicator

On-Balance Volume (OBV) is an underrated indicator in cryptanalysis. Use this indicator to measure positive and negative volume flow in an asset over different time frames.

When OBV goes up, it signals that buyers are stepping in to push prices higher. When OBV goes lower, sell volume is overtaking buy volume and means odds are increasing for lower prices.

Traders can use these directional clues to confirm market trends. For example, if the price of a crypto asset and OBV are dropping together, it signals a continued downtrend.

OBV can help you spot divergences, meaning the indicator and the price is diverging directionally. If the price is falling while OBV is rising, it is an indication that the downtrend doesn’t have strong enough sellers, and the price may reverse soon.

The Top Technical Analysis Tools for Crypto Traders

You can also distinguish between OBV “spot” and “derivatives” volume.

On spot exchanges such as Coinbase, analysts typically associate OBV with new retail market participants.

Derivatives, “futures,” and “perpetuals” markets such as on FTX exchange appeal to more seasoned traders and participants interested in trading on margin and with leverage.

Distinguishing between these exchanges and the implications of the varying indicator readings across each exchange’s markets is a more advanced subject and best to be left for after you’ve had some experience.

Moving Averages

The moving average (MA) is a simple technical analysis tool that smooths price data through a continually updated average price.

Moving averages are often the backbone of more complex indicators, such as the moving average convergence divergence indicator (MACD). When used as a standalone overlay, an MA will appear as a line roughly following an asset’s historical price action on a chart.

The price average will depend on the user’s parameters, meaning a 20-day moving average will differ from a 30-minute moving average.

Advantages to using moving averages in cryptocurrency trading are that traders can tailor them to multiple time frames. As such, you can suit these moving averages to fit short-term and long-term traders. 

The point of using a moving average in crypto trading is to filter out the “noise” from the variable, sometimes abnormal short-term price fluctuations.

One easy strategy for using moving averages in crypto trading is combining two simple moving averages (SMAs), the 21-period SMA and the 55-period SMA.

When the faster SMA (21-period) crosses below or above, the slower SMA (55-period), we call this “crossover” a bullish or bearish signal.

You may wish to wait for these SMAs to diverge long enough to confirm the trend direction in your favor. Using candlestick charts is useful for this reason. When candles close at the start of each new period (e.g., a new hour or a new day), their closing price can give clues to market momentum and positioning.

If there is a bullish cross (the fast SMA overtakes the slow SMA) on an hourly time frame and an hourly candle closes with the price above one or both SMAs simultaneously. That’s a stronger indication of bullish price direction.

The Top Technical Analysis Tools for Crypto Traders

Moving averages can also act as support or resistance. Take the 200-day moving average, which is often a reference for the larger trend in Bitcoin.

In an uptrend, the 200-day moving average will act as a dynamic support level.

In a downtrend, the moving average would act as a resistance level. When the price crosses or closes a daily candle below or above the 200-day moving average, this can indicate a larger trend change that may last for several days or weeks.

Many traders use a combination of the 200-day moving average and the 50-day moving average to identify the overall direction or trend changes in Bitcoin and the broader cryptocurrency markets.

Traders would see a cross of the 50-day moving average above the slower 200-day moving average as a buy signal, also called the “golden cross.” When the opposite happens, traders call this a “death cross.”

The Top Technical Analysis Tools for Crypto Traders

Relative Strength Index

The relative strength index (RSI) is one of the most commonly used indicators, and it’s a crowd favorite in the crypto trading industry. The RSI has three major uses in trading cryptocurrencies.

The RSI consists of a line plotted between zero and 100 based on recent price gains and losses, making RSI a powerful tool for measuring an asset’s momentum and trend strength.

Depending on your RSI indicator design, when the reading is above 70 and close to 100, the asset is considered “overbought.” Falling below 30 and closer to zero indicates the asset is “oversold.” When the asset price is overbought, traders become cautious of a pullback. When the asset price becomes oversold, traders anticipate a price rally.

RSI overbought and oversold levels are not a 100% accurate signal to buy or sell. That is why it’s important to wait for confirmations and use these tools in tandem with others described in this article.

Many traders wait for confirmation before acting upon RSI data. They may wait for the RSI to rise and then dip below 70 before selling. In contrast, they may buy once the RSI drops below 30 and overtakes that level again.

Ichimoku Cloud

The Ichimoku Kinko Hyo combines moving averages and oscillators overlaid on a price chart that helps crypto traders identify higher-probability trades in the market. 

The indicator is a combination of three different indicators that work in tandem to help crypto traders make more informed decisions:

  • The Tenkan and Kijun Sens lines are moving averages that give clues of trend changes and trade entry points via crossovers.
  • The Ichimoku cloud represents current and historical price action.
  • The Chikou Span represents market sentiment by showing the dominant trend to current price momentum.

These four components offer the crypto trader critical insights into cryptocurrency market price action. Without going too deeply into details about the Ichimoku indicator, let’s discuss how to identify trade setups with this powerful tool.

First, the crypto trader will watch for a crossover of the Tenkan (faster) and Kijun Sens (slower) lines.

Next, look to the Ichimoku cloud to identify support and resistance levels. Two components make up the Ichimoku cloud; Senkou Span A and Senkou Span B. The span between the two creates the “Kumo” or cloud.

A thinner cloud indicates low volatility in a crypto asset. In comparison, a wider cloud indicates larger volatility in current price action. 

Price breaking through and above the cloud would indicate a higher probability trade to the upside. The cloud below the price would give you a clue about how strong the barrier is between you and your entry price.

If such price action is confluent with a bullish cross of the Tenkan and Kijun Sens lines, you have identified a strong buy signal.

Finally, the Chikou Span can help crypto traders identify market sentiment. If sellers dominate the market, the Chikou Span will hover below the price trend. If buyers are strong, the Chikou Span will reside above the price trend.

With the previous hypothetical scenario, the Chikou Span is above the current price trend. You would then have all the indicators aligned for a buy signal in the given asset.

As long as crypto traders adhere to strict money management rules, using the Ichimoku indicator can be one of the most powerful trading tools in your arsenal.

The Top Technical Analysis Tools for Crypto Traders

Platforms Offering Crypto Technical Analysis Tools — Pros and Cons

You’ll find a long list of crypto platforms and brokers that provide free technical analysis tools, such as public and in-house menus of technical indicators.

One of the most popular crypto technical analysis tools providers is TradingView.

The TradingView platform provides a Crypto Screener hub for identifying crypto trends and signals using tools that automatically analyze oscillators, performance (weakness or strength in various attributes), and trends based on live data. You can also set alert notifications so you’ll never miss critical shifts in market conditions across multiple time frames.

TradingView’s powerful arsenal of free tools, data feeds, and interfaces are upgradeable with premium and 3rd-party indicators produced with the TradingView proprietary coding language, Pine Script.

The cons of using TradingView are the degree of complexity and the cost of premium services.

TradingView comes with all the basics. However, it’s easy to get overwhelmed at the start with all the possibilities.

An evening may start with a naked chart and end with your screen covered in a dozen indicators and drawings, leaving you with what resembles a Picasso rendition of a rave.

The communities in TradingView can be hit-or-miss. If you join us over at AlphaTradeZone, we can help answer any questions you may have in getting started.

While you’ll have free access to 100s of indicators, dynamic drawing tools, screeners, and scripts, there’s still much more to this platform! Premium users can set multiple custom alerts, access premium charting features and indicators, and save more layouts than a free account. 

Third-party indicators and scripts can range in price from a few dollars up to the thousands. We’d recommend spending plenty of time mastering the free tools before diving into more complex features. Often in charting and technical analysis, less is more.

In the end, it’s up to you what price range and set of tools and features work best for you.

Conclusion

Crypto trading can be intimidating initially, especially if you do not have a background in trading stocks and Forex markets. But once unpacked and practiced, all of the tools, indicators, and charting platforms out there will be extremely helpful for your crypto trading.

Using indicators and trading tools together helps crypto traders filter out the noise and find more “signal.” In other words, they help you identify the best crypto trades in the market.

Using technical analysis tools for trading crypto can increase the probability of spotting highly profitable trades and accurately gauging momentum in the market.

If you want to join a community of seasoned traders and learn about crypto trading together, jump over to the AlphaTradeZone Telegram channel and Discord server.

Discord: https://discord.com/invite/nqSJFKc

Telegram: https://t.me/alphateamsupport

Our proven track record shows how valuable an education-focused crypto signals group can be.

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