I’ve got me a TradingView chart. What do I need next, what are these indicator thingamajigs?

The main thing when trading (or looking to buy a cryptocurrency at a really good entry point) is that you’re going to want to identify the direction that a coin is traveling in. Now, even though this sounds easy I can assure you it really isn’t.

Cryptocurrency like all markets is 50/50, most of the time. Either traveling up or down.

There can be times though when a coin just travels sideways, known as “Bart” or “Barting”. This kind of sideways action gets its name after the Bart Simpson character’s hair style. Short movements moving only slightly up and down for a period of time.

Finding a positive direction for a cryptocurrency is extremely helpful in knowing when to buy, this is when a coin is trading undervalue (oversold).

On the flip side of this it is really handy to know when to sell, this is when a coin is trading overvalue (overbought).

That means we’re going to have to find out a way to see what has been happening and what is “likely” to happen in the near future.

To help us do this we can use ‘indicators’.

As explained, when showing you how to sign up to TradingView, you can have up to 3 indicators on a free account.

I will quickly go over the 3 main indicators now that I have used, seen others using, and indicators that are generally used a fair bit on all trading platforms.

To locate these indicators and add them to your chart look at the top of your chart and on the navigation bar click this icon:


It can be seen on the next image, click it and a menu will appear with lots of built-in options to choose from.

Use the ‘Built-in’ options for now but when you’re comfortable, and understand these first indicators, you can use the ‘Public Library’. Some of the user submitted indicators are pretty awesome.

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I won’t be going into the technical side of how these indicators work, who invented them, and so forth. There are plenty of online resources to find this information out.

I want to keep this basic, explain what they are showing, and how it can help in every day trading situations.

You will need to search using the bar that appears in the indicator box for these 3 indicators.


RSI: – Relative Strength Index

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What is this?

This is a simple indicator to show the change in price using a basic line from a low point to a high point.

How can it be used?

The white horizontal dotted lines, above and below, are set at the oversold (low) point, which is at 30%, and the overbought point (high), which is set at 70%.

When the price line is below the 30% dotted line the price is in ‘oversold’ conditions. This technically is classed as a ‘buy’ position.

When the price line is above the 70% dotted line the price is in ‘overbought’ conditions. This technically is classed as a ‘sell’ position.

Final thoughts.

The idea is to place your trade to buy at the lowest point and ride the wave back up. I have seen videos on YouTube that say “set your buys for when the line is crossing, or is under the 30% mark, and sell when it hits 70%”…

In a bull run that may work. It won’t work all the time during “normal” trading conditions.

What if it hits the 30% mark but continues lower and lower? Which does happen.

Of course you could just set a stop loss and if it does this, then hopefully, you will be stopped out with minimal loss.

That’s not for me.

So, I like to use RSI with other indicators, plus doing a little Technical Analysis with more trading tools, to lower my risks before entering a trade.

You’re never going to be right all the time but I like to get a ratio of about 8 out 10 trades in my favour.

Remember, this indicator is moving in real time, but has a delay, showing you what has previously happened. The RSI does not show you where the price will go to next.


MACD: – Moving Average Convergence Divergence

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What is this?

A more complicated indicator than the RSI as it is made up of three different parts.

The blue line is you MACD line, or buy/sell line.
The red line is your signal line.

The blue and red bars are a ‘histogram’ showing the strength of how bullish (positive) or bearish (negative) the previous movements have been.

How can it be used?

As the blue MACD line crosses the red line signal line this is classed as a buy or sell indication.

When the blue line rises above the red line then this is buy conditions.

When the blue line crosses under the red line then this is sell conditions.

The histogram in the middle shows how powerful the move is. The taller the bars the more powerful the move. This is calculated by measuring the distance between the blue line and the red line.

The greater the distance between them the stronger the move, in either direction.

Usually you’re looking to see a reversal in previous movement before conformation of a move in the opposite direction.

For example, using the histogram you can see that the current down (bearish) movement has been red for 6 days. Now this could continue down. However, if it was to cross and head back up as soon as the histogram goes back to blue (bullish) this would be classed as a confirmation.

It is these swings in direction that show confirmations. If the histogram doesn’t change from one colour to the other then this is classed as a continuation.

The MACD can be used to see when divergence (meaning the price continues in a certain direction and the movement from the MACD goes in the other) signals a potential change from bullish to bearish, and vice versa.

To me this advanced trading and not really needed to be explained.

Divergence isn’t very accurate when using the MACD unless you’re 100% positive of the overall trend, bullish or bearish.

This blog is only intended for basic information on beginning to use these indicators.

Final thoughts.

Do not trust this indicator as gospel. False indications do happen and the price, in either direction, may not follow.

You need to be aware of ‘fake outs’ this is kind of like a trap. The momentum can travel in a ‘bullish’ (positive) direction and then the price shortly after is dropped, therefore leaving you stuck and trapped high.

The distance between the blue and red line shows if the price is in overbought or oversold conditions.

Usually if the trade is sustainable the distance between these 2 lines would remain reasonable and steady.

A sharp move, either way, could be a warning of a change in the other direction. Also known as a “pump and dump”.

Combined with using RSI you can make a positive decision on the direction of Bitcoin.

I do not trust these indicators enough to trade using them alone.

I actually use other tools, which I will explain later, to “confirm” a trade.

I use indicators to gauge an overall bullish/bearish direction only.


Volume

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What is this

Short but sweet. This shows the change in amount of trades being made over a particular time frame, either positive (buying) or negative (selling).

If a majority of the trades have been for buying Bitcoin then the colour is green. If the majority of the trades have been for selling Bitcoin then the colour is red.

The height of the bars indicators the how strong the demand to buy or sell is.

How can it be used?

Honestly, I haven’t looked at volume in a long time. I don’t actually use it at all.

Why is this?

Well, Bitcoin doesn’t actually need lots of people making trades together for it to actually move.

Final thoughts.

Use volume indications wisely.

I have seen Bitcoin price increase ten fold whilst the volume hasn’t even moved. This is commonly known as manipulation.

Manipulation is where an individual, or possibly even an exchange, makes a few large trades and shifts the direction of Bitcoin, either way.

I believe it is actually illegal in normal trading on the stock market. However, this is Bitcoin and as I described before, the Wild West of trading. Therefore, I don’t use it, or trust it.

Volume can visually show you the amount of interest in a bull run, or bearish downtrend, if you decide to use it. The more sustained increase/decrease in volume the more trades being made, in either direction.

TradingView trick:

You can add RSI, MACD and 1 other indicator to your chart. Add Volume last and voila 4 indicators. Shhh… 🙂


Being armed with this information also means that you have a choice of leveraging and using exchanges such as BitMEX to ‘short’ or go ‘long’.

This is a much more advanced form of trading and is extremely risky.

In a sense you’re borrowing money to “bet” at the outcome of the movement of cryptocurrency… This is tempting as you can make a lot of money quickly.

Get it wrong, as I have previously done and your money is instantly gone and you’re liquidated. I’ve been there twice now, it isn’t fun. (The temptation to keep going back though is strong, gambling is addictive!)

So, until you’re really confident with charts and directions I would advise staying away from this kind of trading.

Indicators are not the only thing available to use on trading charts. There are a lots of tools available to help you as well.

Once you work out the direction of travel for the cryptocurrency you’re following you can then start to use TA (Technical Analysis), click here and I will explain more.

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