Moving averages are lines that show the average price over a certain period and allow identifying trends. Amid a market full of greed, the FOMO usually takes over small investors.
Successfully trading cryptocurrencies can be a very complex task, but indicators can help smooth the way. Those tools process information and provide an analysis that allows predicting the price behavior of those assets.
Each indicator is helpful on a specific occasion, but none infallibly predicts what will happen to the price. However, it is advisable to analyze and test each one and adapt it to the personal cryptocurrency trading strategy.
Fibonacci Retracements Indicate the Resumption of a Trend
The Fibonacci sequence is an infinite sequence in which each number results from the sum of its previous two. Analysts usually use Fibonacci Retracements, consisting of a rule drawn from the start to the end of the momentum.
The purpose is to identify areas where the price may stop correcting to resume the trend.
The most used retracement levels are 23.60%, 38.20%, 61.80% and 78.60%. For example, the price of Bitcoin recently stopped correcting above the 61.8% Fibonacci. Many technical analysts regard that level as the sweet spot for retracement.
Moving Averages Help Identify Trends, Supports, and Resistances
One of the indicators that analysts use the most is moving averages, as they are helpful and easy to interpret. They are lines that show the average price during a given period.
As that indicator smooths the fluctuation of a price, experts use it to identify trends, supports, and resistances.
The crossover of the exponential moving average (EMA) of 8 above the simple moving average (SMA) of 18 indicates a bullish change in the trend. If the opposite occurs, the crossover will be a bearish signal.
The 200-period SMA gives an idea of the higher trend.
For example, the 8 EMA recently passed above the 18 SMA, signaling the beginning of an upward trend, which then developed. Also, those moving averages functioned as dynamic supports amid the rally.
Meanwhile, the 200-day SMA turned bullish on the way, and it appears to be working as dynamic support for the price of Bitcoin.
The S2F Allows Knowing When Bitcoin Will Reach the Total Coins in Circulation
Stock to Flow (S2F) is popular in the world of cryptocurrencies, as it performs a calculation that predicts the possible future price of Bitcoin. Although no indicator is infallible, this one has been making good forecasts.
As BTC has a limited supply, the Stock to Flow model allows finding how many years it takes to reach the number of coins in circulation. A higher calculation result will indicate that the price will rise.
Although the current price has moved quite far from the indicator, it is already beginning to show a rebound. It could be seeking to get closer to the USD 100,000 forecast before 2021 ends.
The Fear and Greed Index Allows Detecting the Best Moment to Market
The fear and greed index allows detecting the sentiment of the cryptocurrency market and a good time to buy or sell.
This index comprises 25% volatility, 25% market volume, 15% activity on social networks, 15% surveys, 10% dominance, and 10% trends. Analysis of that data resulted in reliable market sentiment, identifying an environment of greed or fear.
When the market is full of greed, the FOMO usually carries small investors away. On the contrary, amid extreme fear, sellers may sell irrationally. Besides, the dip bottom may have already arrived or is about to do it.
By Alexander Salazar
