Trend, Momentum, Volatility and Volume Indicators Explained.  

Technical analysis (TA) is said to have first been used in Asia in the 18th century, where the first ever case of using candlestick patterns was recorded. Since then stocks, forex and, more recently, our beloved cryptocurrencies have been studied by thousands of analysts through the scope of technical analysis. Indeed, this has led to a unique type of investor, the technical analyst.

TA basically consists of analyzing past market data, mainly price and market volume, to forecast future patterns and directions of the price with the intent of profiting from this insight.  A technical analyst applies a mix of technical indicators when studying price movements. These are mathematical calculations, based on past data of a certain asset, which give some insight about potential price directions.

Unlike fundamentalists, traders operating purely according to a TA strategy, only examine pasts price patterns and data through charts hoping that these ones will be repeated in the future. They prefer to move away from looking at the fundamental value of an asset, believing rather that history repeats itself and that trading behavior can be mapped out.

Technical indicators can be divided into 4 unique groups, with individual philosophies into how prices can be forecasted. These 4 groups are trending or moving averages, volatility, momentum and volume indicators. Every one of these groups has in common the goal to uncover insight into the future prices of the assets they’re trading.  

 

Trend Indicators

Trend indicators boil down sporadic and varying candle prices into a single uniform line. The idea is to pinpoint and follow trends to foresee when they might reverse or range, and then base a trading decision off of that.

The vast majority of indicators that are considered trend indicators are moving averages. These are calculations that generate price averages for the last “X” periods to identify a trend line. The philosophy behind trend lines is that prices may go up and down across different candles, but if you calculate an average, you can see whether the aggregate of all candles indicates an upward trend (increase in price) or a downward trend (decline in price). With this insight, you can also figure out when an asset will reverse in trend, or when it’s ranging (moving sideways) since most of these indicators lose money when the price ranges.  

The most representative indicators to identify trends are the followings: Moving Averages. These are divided into many different types, each of them having their own specifications. Cryptohopper has added the most used ones, these are: Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Double Exponential Moving Averages (DEMA), KAMA, Mesa Adaptive Moving Average (MESA), MACD (which is considered a mix of a trend and momentum indicator), T3 Tillson Moving Average, Triangular Moving Average (TMA), TEMA and WMA. You can find their description by clicking here.

 

Momentum Indicators

The momentum measures the speed and strength of the price movement. It compares the current closing price with this one a certain amount of periods ago. Momentum indicators´ levels hover between 100 and 0, or around a zero line depending on the indicator. For example, if the current level is 64 and the previous one was 60, it suggests that the price is moving upwards.

Momentum indicators on their own don’t provide much information about future price movements. They mainly tell us if the price is trending up or down and if it is considered overbought or oversold based on past price ranges.

In Cryptohopper, you can find some of the most representative momentum indicators. These are: Stochastic, RSI, StochRSI which is a combination of both and is designed to enhance sensitivity of the previous ones, Ultimate Oscillator, Williams %R, Chaikin A/D Oscillator, CCI, DMI, Momentum, Money Flow Index (MFI) which can be considered as a volume indicator as well, PPO and Rate Of Change (ROC).

 

Volatility

Volatility indicators measure the volatility of the price, indicating when a market is more volatile and, therefore, more volume is entering in it. Then, when the price is more volatile, it has fewer ranging possibilities, thereby making the price to start trending and favoring longer positions.

Traders love volatility. It moves the price creating trading opportunities and is usually accompanied by more volume. Markets with little volatility are considered boring and not profitable, as well as very possibly more illiquid.

The most common volatility indicators are the followings: Bollinger bands, compounded by three lines, measures the price volatility through the width of its standard deviations bands (upper and lower); Standard deviation or percentage change, indicates how widely prices diverge from its average price, plotted by a line at the bottom of the graph; ATR and ADX, works is a similar way and consists of a line measuring the volatility level.

 

Volume

The volume indicates the number of contracts traded for a certain asset in a period of time. These ones will help you measure the strength of a trend and its direction. Traders like volume since, similarly to volatility, it creates trading opportunities. On the other hand, they try to avoid low volume periods since the price might be ranging which may lead to either low profitable trades or negative ones.

In forex and stock markets the period of trading is very well defined due to most of the traders operate at the beginning of the European, American and Asian market, that is, when the volume is higher, the market is trending more and there is more liquidity.

Regarding volume indicators, the most used one is simply the market volume, it measures the number of contracts traded in a period of time. This indicator (that actually is not an indicator since it doesn’t imply any calculations) is one of the most used to analyze the market. It gives a very good insight of when and where the volume appears in a market. 

Volume indicators that you can find in Cryptohopper are: On Balance Volume (OBV), Chaikin A/D oscillator and Money Flow Index (MFI).

These are the most representative group of indicators. Most of the existing indicators are included or are variants of these four groups. In Cryptohopper you can trade with up to 130+ indicators that provide different information. Combine them in the strategy designer until you find the strategy that best fits your trading style!

 

Ready to start trading with Cryptohopper? Start here.