Steemit Crypto Academy Season 4 Week 2 | Homework Post for Professor @reminiscence01 - Technical Indicators
Good morning everyone, steemians, blogers, readers, and crypto lovers. I will start a positive activity today because life must always be productive and today I will write a post about cryptocurrencies on my blog to participate in the Steemit Crypto Academy Season 4. This is the second week of Season 4 and the first class I will be taking this week is professor @reminiscence01's class. In this class, we will learn and share knowledge about “Technical Indicators” based on the following questions.
In your own words, explain Technical indicators and why it is a good technical analysis tool
Technical indicators are two words that we hear often and are very familiar to traders because they are tools used to predict future market conditions based on mathematical calculations of a number of historical data that are displayed graphically (visual) for traders to understand more easily. To support good analysis results and confirm a signal, traders can use various technical indicators according to the needs of the trade being carried out and traders can also combine various technical indicators that are out there to get more accurate analysis results.
Overall, market conditions are always repetitive because the market has a psychological cycle that tends to repeat itself and the law of supply and demand always applies in the market. For this reason, technical indicators will consider a number of historical data as a reference source used to identify future market conditions. These historical data usually consist of the opening price, closing price, high price, and low price in a certain period which are combined specifically to get a trading signal in the future for consideration in making a prediction.
Technical analysis is one of the most important analyzes that every trader needs to understand because this analysis is very helpful for traders in making decisions in the market and most traders usually make this analysis the main choice in predicting the market. Good market analysis skills are the main skills that are indispensable in trading and this is a measure of the success of traders in the market although it cannot be considered 100% accurate because in some cases the market may move in the opposite direction.
Technical analysis is suitable for both short-term and long-term trading. Scalping traders and experienced swing traders have made technical analysis a mandatory analysis that is always considered in every trade that will be made. In addition to technical analysis, swing traders usually also combine it with fundamental analysis so that they can produce stronger analytical conclusions.
Are technical indicators good for cryptocurrency analysis? Explain your answer
With full confidence, of course I will answer that technical indicators are very suitable, very good and very supportive of an analysis in cryptocurrency trading because it has been proven reliable by millions of traders and is very helpful for traders in making an analysis to determine a trading decision. Although it is by no means 100% accurate, technical indicators are the main choice most used by traders in making trading decisions. In addition, with the help of technical indicators in carrying out technical analysis, traders can also determine good trade management by setting the stop loss & take profit ratio of a trade.
Illustrate how to add indicators on the chart and also how to configure them (screenshot needed)
I usually use the TradingView https://tradingview.com platform to search for various price charts of various trading pairs and then I will make an analysis by adding various indicators that match my trading strategy, here is the tutorial.
- In this case I have selected the price chart for the TRX/BTC trading pair and you can also choose other trading pairs in the column I have marked as shown in the following picture.
- To add an indicator, click on the Fx Indicators logo.
- Then a pop up menu will appear as shown below. Write the indicator you want in the search field and in this case I will choose the KDJ indicator.
- Close the pop up menu because the indicator has been successfully added to the price chart. You can also combine several indicators in one price chart by adding other indicators as in the previous step.
- Click the ring gear logo to set the configuration.
- Then a pop up menu will appear as follows consisting of Inputs, Style, and Visibility. To get the best results, then in the Inputs section I will apply 9 periods and 3 signals, in the Style section I only set the top level is 80 and the bottom level is 20, while in the Visibility section I only use general settings.
Explain the different categories of Technical indicators and give an example of each category. Also, show the indicators used as an example on your chart (screenshot needed)
Trend Based Indicator
The market has two main trends, namely Bullish/Uptrend and Bearish/Downtrend, while a market without a trend is called Sideways and traders are always required to be able to identify every trend that occurs in the market because trading against the trend is a very silly thing. By using trend-based indicators such as the Average Directional Index (ADX), traders can identify the strength of the current trend in the market.
For example, in the picture above it can be seen that I have installed the ADX indicator on the TRX/BTC trading pair price chart display and based on the picture it can be seen that the ADX value is 53.62 which means the trend is very strong. ADX interprets trend strength based on values 0-100, 0-25 is weak or no trend, 25-50 is strong, 50-75 is very strong, and 75-100 is very very strong.
Volatility Based Indicator
As we have seen, the price of cryptocurrencies is very volatile and even the price can go up & down on a large scale so the high and low prices are the main thing in this case. By using volatility-based indicators such as the Average True Range (ATR), traders can identify market swings that are analyzed based on price fluctuations in a market and determine the level of volatility of a market so that traders can buy assets at swing low points and sell them at swing high points. For example, in the picture above it can be seen that I have installed the ATR indicator on the price chart display of the TRX/BTC trading pair and based on the picture it can be seen that the ATR value is 0.00000017.
Momentum Based Indicator
The supply-demand force holds an important control in the market and market conditions with high transaction volume in certain trends tend to lead the market towards a stronger trend until it reaches overbought conditions in the case of an uptrend or oversold in the case of a downtrend. Such market movements are frequent momentum in the market and traders can analyze them using momentum-based indicators or oscillators such as the Relative Strength Index (RSI) indicator. That way, traders can find out the level of price movement in a market that is indicated based on overbought and oversold conditions so that traders can take profits by placing sell orders on overbought conditions and placing buy orders on oversold conditions.
For example, in the picture above it can be seen that I have installed the RSI indicator on the price chart display for the TRX/BTC trading pair and based on the picture it can be seen that the RSI value is 79.57 which means it is overbought. Based on the most commonly used configuration, the RSI interprets overbought and oversold conditions based on values 0-100, values below 30 are oversold while above 70 are overbought.
Briefly explain the reason why indicators are not advisable to be used as a standalone tool for technical analysis
Each indicator has different advantages and disadvantages and traders can use various indicators as needed and relevant to the trading strategy being carried out. To get better analysis results, traders tend to use various indicators that vary from different types and combine them because each indicator has different characteristics.
By combining several indicators traders can conclude an analysis from different points of view and this makes an analysis stronger. Therefore, traders are not advised to believe in only one indicator and are more advised to combine several indicators in every analysis carried out because this is clearly better and become one of the solutions to filter out false signals.
There are various indicators out there, but I usually use some of my favorite indicators such as the Relative Strength Index (RSI), Moving Average (MA), Average True Index (ATR), Average Directional Index (ADX), Random Index (KDJ), and Ichimoku Cloud. As an example of a suitable combination, usually ADX is suitable to be combined with RSI, ADX is also suitable to be combined with ATR and MA as one package, ADX is also suitable to be combined with KDJ and ATR as one package so that signals can be confirmed more accurately although it can't be said to be 100% accurate. In addition to using technical indicators, a good chart observation is also very important in technical analysis.
Explain how an investor can increase the success rate of a technical indicator signal
Good knowledge of a technical indicator is the main key that traders need to understand because each technical indicator has different characteristics. Traders must understand well how the indicator to be used works and consider whether or not the indicator is suitable for the trading style being carried out. Traders also need to configure the indicator configuration appropriately according to the needs of the trade being carried out.
The use of several indicators of different types as a combination is the main solution to ascertain whether an analysis result can be confirmed or not because when several indicators indicate a relatively similar analysis result, it means that it can be confirmed as an analysis result which tends to be more accurate and vice versa. Good chart reading and experience of traders are other contributing factors in this case.
Various technical indicators used in technical analysis play a very important role in helping traders to identify the market and this has become one of the main needs for traders. The selection of the right indicators with various combinations can produce better analytical results and the technical analysis skills possessed by traders are a measure of the potential for success in trading even though it is by no means 100% accurate. Traders should always consider choosing a technical indicator that suits the needs of the trading strategy being carried out because every trader has a different trading style.