Use these 3 Indicators to Spot Crypto Opportunities

Much like a stock, cryptocurrencies are driven by fear and greed

And much like a stock, you need to be greedy when others are fearful, and fearful when others are greedy, as Warren Buffett would advise.

But how to we know when that happens?

One way is to use simple technical tools that pinpoint the exact moments that fear and greed are getting way out of hand. To do so, think of a crypto like a rubber band. We can only pull that rubber band so far before it snaps back and begins to revert to mean.

This is where the momentum oscillators and technical indicators come into play.

Using specific signals, these indicators help traders make almost accurate predictions regarding the direction and momentum of the market trend. Below are three technical indicators frequently used in cryptocurrency trading.

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Technical Indicator 1: Moving Averages

By now, you’re well aware of how to find trends using simple moving averages, such as the 20- and 50-day moving averages. But you should also know how to spot the moment when a trend could potentially stop dead in its tracks, or birth a new trend.

All we have to do is wait for a crossover to do so.

For example, we can spot a bullish “golden cross” when the short-term moving average, such as the 20-day, crosses above the longer-term 50-day average. When this happens, we’ll typically see a stock or an index move higher.  Or, we can look for a death cross, where the short-term moving average crosses below the longer-term average. 

Additionally, we can use the 50-day and the 200-day simply moving averages as our “line in the sand.”  Not only am I looking for crossovers for golden and death crosses, I want to see if a stock is holding its own above them.

Technical Indicator 2:  Relative Strength Index (RSI)

The Relative Strength Index (RSI) acts as a momentum indicator which helps measure the value of the latest price changes. It helps us determine if a coin or even a stock is oversold or overbought by watching its range between 30 and 70.  For example, historically, each time Bitcoin has hit or penetrated its 20-line on RSI, we typically see a bounce back in the coin. 

Technical Indicator 3: Bollinger Bands (2,20)

Bollinger Bands (2,20) let us know how far a coin price can be stretched before it begins to pullback and revert to mean. 

Technically, Bollinger Bands include:

- An upper curve (median curve added to two times its standard deviation)

- A lower curve (median curve minus two times its standard deviation)

- A median line (which is actually a 20-period EMA)

The idea behind these bands is simple. When a stock – or index – touches or penetrates the lower band, the situation can be considered oversold. When a stock touches or penetrates the upper band, it can be considered overbought.

For example, much like RSI, each time the lower or upper Bollinger Band is hit or penetrated, we typically see a reversion to mean shortly after.

These are just three of the most powerful indicator to consider when trading cryptocurrencies.

Even in times of extreme panic, these indicators still work quite well.

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