[Technical Indicators] - Crypto Academy / S4W2- Homework Post for @reminiscence01
hello steemians we meet again on homework for the second week in this 4th season of Steemit Crypto Academy. This time I will make a post for the homework of @reminiscence01. The task this time is to answer several questions that have been given by the professor about Technical Indicators.
Homework list:
- In your own words, explain Technical indicators and why it is a good technical analysis tool.
- Are technical indicators good for cryptocurrency analysis? Explain your answer.
- Illustrate how to add indicators on the chart and also how to configure them. (screenshot needed)
- 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)
- Briefly explain the reason why indicators are not advisable to be used as a standalone tool for technical analysis.
- Explain how an investor can increase the success rate of a technical indicator signal.
In your own words, explain Technical indicators and why it is a good technical analysis tool
Investments definitely rely on your ability to analyze, and technical analysis is one of the most frequently used by traders. Technical analysis is an analytical technique used to predict the trend of a price, by reading past market data.
To help increase accuracy when reading market data a trader can use tools such as technical indicators
A technical indicator is a tool that provides data from the results of certain formula calculations to measure and assess market conditions so that traders can predict the next market direction.
Are technical indicators good for cryptocurrency analysis? Explain your answer
For the second question, my answer is yes. Technical indicators are very helpful tools in analyzing the price movements of the cryptocurrency market with very high accuracy. But, technical indicators cannot be used alone without a combination of fundamental analysis and technical analysis to avoid false signals.
Illustrate how to add indicators on the chart and also how to configure them (screenshot needed)
There are many platforms that traders can use to monitor the price of a cryptocurrency. Here I use the Tradingview platform to illustrate how to add technical indicators to the chart and how to configure these indicators.
In this illustration I will add a stochastic indicator, this indicator serves to determine oversold and overbought a market in the time period that has been configured.
1. Open Tradingview website
2. Select chart
3. Look for the Fx icon to add technical indicators
You can also change or select the currency first and then add the technical indicator.
4. Type the indicator that you need
There are many indicators that can be used but in this illustration, i chose the stochastic indicator to find out overbought and oversold in the market
5. Configure the indicator
You can configure the indicator by moving the cursor to the indicator name and clicking the setting icon
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)
In the exchange, market there are 3 categories of indicator types that can be used according to the way a trader analyzes market price movements, the three types of indicators are:
1. Trend base indicator
2. Indicator based on volatility
3. Indicator based on momentum
The indicator is indeed a very helpful tool in analyzing and predicting the direction of prices in crypto currencies, but an indicator often gives false signals that can affect our trading performance, therefore the indicator cannot be used alone.
A trader must use several indicators to avoid false signals from an indicator, and it will be more powerful if the trader combines technical analysis, fundamental analysis, and technical indicators together.
1. Trend based indicator
Predicting the direction of a market's trend is not the same as speculating or forecasting without a foundation. For this reason, traders need to map price projections with certain rules. Then for this reason trend-based indicators are needed by a trader because this indicator can help traders to determine where the trend of a currency is going.
I will give an example of an indicator that can be used to determine the trend towards the price of a cryptocurrency below.
2. Indicator based on volatility
Volatility in the forex market is like a double-edged sword. On the one hand, high volatility provides a greater opportunity for traders to make profits in a short period of time. On the other hand, a more volatile market also poses more risk to traders. one way for a trader to overcome this is to use indicators that are based on volatility, here's the an example of a volatility indicator.
As seen in the example above, when the price shows an uptrend we can find out whether the trend is a good trend to trade or the trend will end soon by looking at the line chart on the Average True Range (ATR) indicator.
3. Indicator based on momentum
Momentum-based indicators can tell traders if the price of a cryptocurrency is overbought or oversold against its past movements over a certain period of time, and can also indicate that the trend may be likely to reverse direction. Momentum-based indicators will help traders predict price changes and also become more profitable. Momentum indicators can also give a trader additional clues to place trade opportunities more correctly and even more profitably. For example this time I will use an indicator called stochastic, this is one of the most widely used indicators by traders because it is very easy to use to find out oversold and overbought the price of a cryptocurrency market.
In the picture above it can be seen that the price is in an uptrend according to the moving average (MA) indicator but from the average true range (ATR) data the market is not having high volatility which means the trend direction could change soon so traders can see the possibility to place an order when the price reaches the overbought level on the stochastic and the price crosses the moving average line downwards.
Briefly explain the reason why indicators are not advisable to be used as a standalone tool for technical analysis
The indicator is indeed a very helpful tool in analyzing and predicting the direction of prices in cryptocurrencies, but an indicator often gives false signals that can affect our trading performance, therefore the indicator cannot be used alone.
A trader must use several indicators to avoid false signals from an indicator, and it will be more powerful if the trader combines technical analysis and three different types of technical indicators together.
As in the previous task of explaining the difference between the types of indicators, traders can get accurate signals after getting confirmation of the three indicators and can place orders quite well. But if you only use one indicator then the risk when trading will be very high because it could be that the signal given by that one indicator is a false signal.
Explain how an investor can increase the success rate of a technical indicator signal
When an investor wants to increase the success rate of the technical indicator signals he uses then he must know how the indicator works, and an investor must understand what the data provided by the indicator means. Just like a pilot who wants to maneuver a fighter plane, then he must know the capabilities of the aircraft, how it works, wind conditions, and many other things. Likewise, an investor when using a technical indicator he must study the indicator before using the signals given by the indicator.
Combining technical indicators, technical analysis, and fundamental analysis will also make an investor know which accurate signals are given by the technical indicators he uses.
Conclusion
In the task I'm working on this week I've learned how a technical indicator is very useful when analyzing the price movement of a cryptocurrency. Proper knowledge is required when using technical indicators to avoid false signals given by technical indicators. The thing that amazed me the most about the assignment given this week was that I learned to combine three different types of technical indicators to confirm the right and accurate signals from technical indicators.
CC: @reminiscence01
Hello @imankrnfx , I’m glad you participated in the 2nd week Season 4 of the Beginner’s class at the Steemit Crypto Academy. Your grades in this task are as follows:
Observations:
That's correct.
Recommendation / Feedback:
Thank you for completing your homework task.
Thank you professor @reminiscence01
I can see your post has paid out without getting curated by @steemcurator01. Please kindly repost with a screenshot of my review and also add repost in the title.
Thank you.
Thanks for the instruction prof