There are a lot of indicators and finding the right one to use is often a real challenge. Many indicators are built by professionals and have a specific purpose and way to be used therefore novice crypto-traders should keep to a limited set of indicators. As a beginner, you should focus on indicators that are simple to understand and have proven to be useful. Here are 5 best indicators for novice crypto traders.
1. Moving averages (Simple or Exponential)
There are many types of moving averages on the crypto market. The most popular moving averages are the simple moving average SMA which is simply the average of prices or the exponential moving averages EMA which gives more weight on recent price action. MA gives you ideas of where the average price action should be based on recent prices. The average is based on a number of candles such as 50, 100, or 200, those numbers are the most commonly used.
2. Relative Strenght Index (RSI)
The Relative Strength Index RSI is a trading indicator referred to as an oscillator that displays the overbought/oversold sentiment regarding the price action. RSI displays values from 0 to 100., usually, the price is considered oversold if the RSI is below 30 and overbought when the RSI is above 70.
3. Moving average Convergence Divergence (MACD)
The MACD is an oscillator that is based on the movement of two SMAs (usually 9 and 21), the indicator shows the convergence and divergence of those moving averages. It allows you to identify divergence and determine the point of a trend change.
4. Volume-weighted average price (VWAP)
The VWAP indicator is similar to the moving averages however it is based on volume. It shows you where the big buyers are entering/exiting their positions. Investors are always looking to enter or exit around the VWAP as it is the most liquid area.
The Volume indicator allows you to determine the liquidity of the cryptocurrency but also the actual trend. When the volumes are increasing it shows that the actual movement is accelerating while if volume decreases it shows that the current movement may come to an end.
One last word
It is important to understand that an indicator is a tool to help you make decisions. You should combine them but not use too much of them as it may confuse you. I recommend using a trend following indicator (my favorite one is VWAP) and an oscillator (I use the RSI).