What Indicators Should Crypto Investors Rely Upon?

Crypto investment is gaining momentum everywhere in the world. This is because, since 2024, several factors have played a positive role in boosting the acceptance and credibility of cryptocurrencies. It is no longer a fringe phenomenon and is now mainstream. The most crucial favorable factor is that Donald Trump has become the US President and is already implementing several policies to boost its growth. In the coming days, standard cryptocurrency regulations may well become a worldwide reality. However, analysis of cryptocurrencies is important and from the perspective of crypto investors holds the key to their success. Crypto investment is similar and dissimilar to other forms of investment such as stocks, and bonds, but is based on the same principles aligned to Dow Theory.

Six Principles of Dow Theory

The six principles of Dow theory are one of the main commonalities that cryptocurrencies have with other asset classes. This is why cryptocurrency exchanges offer full views of the crypto market too and the performance of the cryptocurrencies individually.

• Two types of Primary market

The two types of primary markets are bull and bear markets. The primary trends have a basis only in this primary market. The secondary trends of the market are oriented against the primary ones. These include rectifications in both bull markets and bear markets.

• Trends Have 3 Phases

The primary trends undergo three major phases. In the bull market, high growth, more accumulation, and excess stages become the defining features. In the bearish market state, low or negative growth, less accumulation, and losses become the defining features. The secondary trend, or the third phase, involves correlations in bull and bear markets.

• Market trends correlate with volumes.

In a bullish market, the market volume should increase and in a bearish market, the volume must decrease over time. This is invariably true for all asset classes including the cryptocurrencies. Investors should also observe whether there is a new market trend. If both indices signal the same upward or downward trend, then traders can see that a new trend has begun.

• The value or price of assets includes comprehensive information.

The crypto market just like any other market incorporates all major information about assets. The competitive edge and profitability are already incorporated into an asset’s price.

• A Clear Reversal Can Break The Persisting Trend

Market trends are continuous and have distinct phases. The phases end only when a definite reversal occurs. Small fluctuations in prices are insignificant in phases.

Identification of Trends And its Roles

Profitability and maximum returns on investment are the primary goals of crypto investors. Therefore, similar to other types of investors, crypto investors must identify and observe trends.

• Upward trends

When the prices reach very high points. On a chart, the traders usually plot it by drawing an uptrend line and linking the lows. Many use the concept of moving averages to identify the trend while drawing trend lines.

• Downward trends

Downward trends indicate when the prices reach the bottom end. The traders plot it on a chart by drawing a downward line. A moving average can be used here as well.

• Trends Signaling Stability or Consolidation

The upward trend or downward trend can oscillate frequently but the gap may remain narrow. In such a scenario, investors usually conclude that the cryptocurrencies are stabilizing. It is a feature of consolidation.

Common Indicators Used by Crypto Investors

The common indicators used by crypto investors are necessary for analyzing and understanding crypto trends. It is useful for both short and long terms. The common indicators include the relative strength index (RSI), and moving average convergence divergence (MACD). These indicators usually keep track of the prices. Only a few indicators keep track of the volume such as the on-balance volume (OBV). 

Relative Strength Index (RSI)

J. Welles Wilder is the developer of this index. The index fluctuates between 0 and 100. It measures the speed of price movements. The default or ‘normal’ settings are the range between 70-30. If the indicator is above 70, then the security is attracting a large number of buyers. Contrastingly, if the indicator is below 30, then the security is compelling people to sell it.

• Moving Average Convergence Divergence (MACD)

The moving average convergence divergence (MACD) is by far the most important and credible indicator. Gerald Appel is the developer of MACD. The MACD line denotes the difference between the 12-day EMA (Exponential moving average) deducted from the 26 EMA. The signal line marks the ninth day of the EMA of the MACD. The two lines hover around a central line which is at zero. The indicator does not have either upper or lower limits.

• Bollinger Bands

The Bollinger Bands are volatility bands that are either above or below the moving average. These are plotted on price. Volatility is based on standard deviation. The bands will contract only when volatility increases and vice versa. The assumptions are made on +2 standard deviations above the center line and -2 below the center line. The surrounding market forces (environment) determine the prices while trading. Bollinger bands also assume that prices will reach the point of the mean. 

Components of A Crypto Chart 

The analysis and interpretation of the prices of cryptocurrencies require charts and indices. It also has a few common parameters that point out the performance of cryptocurrencies.

• Market Capitalization (Market Cap)

The market capitalization of a cryptocurrency is calculated by multiplying the price of each token by the number of coins in circulation. The data can include ranges starting from a few days, weeks, or years.

• Hashrate

The speed of mining a cryptocurrency is called a hash rate. It measures how many calculations can be completed in a second in units of second/hash. It indirectly indicates the level of security of a crypto. For example, if the hash rate is high, more miners are checking the transactions, and therefore the crypto is safer.

• Supply Circulation

The circulation supply includes the number of tokens or coins that are actively traded and used in the market by the people. 

• Price

The price movements are strong indicators as to how much the cryptocurrency is beneficial across days, months, years, and weeks. It also checks the performance of price and are some tools essential to understand for investment.

• Trade Volume

The number of times a cryptocurrency changes hands (to be precise, ownership) during a certain period. If it is expanding, then the number of transactions is increasing and vice-versa.

Final Thoughts

Technical analysis is a must while dealing with cryptocurrencies. To find a suitable cryptocurrency, investors must view charts and indicators. They should observe the trends for weeks and months to get a rough idea of the functioning. It is hard to say which chart for crypto trading is more suitable. Therefore, investors must use, observe, and analyze multiple charts to confirm trends and prices. The best indicator is the one that the investor understands easily and covers the requirements economically.