Top 7 of The Best Indicators for Crypto Trading Success

Last Updated: 4 November, 2023
6 min read

crypto trading indicators

Technical indicators are the backbone of crypto trading strategies. These mathematical models analyze crypto market statistics to forecast price movements. Mastering a proven set of indicators is crucial to trading crypto profitably. The most time-tested  indicators used by our team we’ll include are Moving Averages, RSI, Ichimoku Cloud, Bollinger Bands, Stochastics, OBV, and VWAP.

This detailed guide explores powerful indicators for cryptocurrency market in 2023. We will examine:

  • Why indicators work for crypto trading
  • The top 7 crypto indicators
  • Specialized indicators for market conditions
  • How to combine indicators into a trading strategy
  • Backtesting and optimizing your indicators
  • Indicator limitations and pitfalls to avoid

Follow these insights to utilize indicators like the experts and achieve consistent trading gains.

Why Indicators Matter in Cryptocurrency Trading

Cryptocurrency prices can fluctuate wildly day-to-day. Traditional news or fundamental analysis often fails to explain price movements in crypto. Technical analysis through charts and indicators provides a probability-based approach to trading.

Indicators analyze market statistics like price, trading volume, and volatility. They distill this data into simple signals to interpret. When combined with a solid trading plan, indicators give traders an objective way to make decisions.

Here are some key benefits of using indicators for cryptocurrency trading:

  • Identify trading opportunities – Indicators help spot trends, reversals, support and resistance levels, and ideal entry/exit points.
  • Confirm market outlook – Indicators can validate or contradict assumptions about market direction. Multiple indicators confirming signals increases reliability.
  • Establish trading rules – Strategies can be designed around indicator signals for consistent execution. This removes emotion-based trading.
  • Gauge market momentum – Indicators help determine if momentum is building in a trend or if the market is overextended.

The right indicators provide high-probability trading signals. If you are a new trader, you should focus on learning a few tried-and-tested indicators first before exploring more advanced ones.

If you are new to technical analysis, start here.

Top 7 Technical Indicators for Crypto Trading

Hundreds of indicators exist across all financial markets. However, a subset of popular technical indicators consistently perform well for Bitcoin. Here are the top 7 all-around indicators every crypto trader should know:

1. Moving Averages (MA)

Moving averages smooth out price action by averaging closing prices over set time periods. They act as dynamic support/resistance levels. The two most popular moving average indicators are:

  • 50 and 200-day simple moving averages for long-term trends
  • 20 and 50-day exponential moving averages for medium-term trends

Moving Average Strategies:

  • Golden Cross – When a shorter MA crosses above a longer MA, it signals an uptrend
  • Death Cross – The reverse crossover indicates a new downtrend
  • Price crossing above/below MA indicates potential continuation
  • MA acting as support/resistance

Moving averages work especially well for trend-following approaches across all time frames. Use the 50/200-day MAs to define the primary trend direction and 20/50-day MAs for trading within that trend.

2. Relative Strength Index (RSI)

The Relative Strength Index measures the speed and magnitude of recent price movements to identify overbought and oversold conditions. RSI oscillates between 0 to 100:

  • 70+ indicates overbought territory
  • 30- signals oversold territory

RSI Trading Strategies:

  • Reversals off extreme RSI levels – Buy oversold, sell overbought
  • Failures to exceed extreme levels – Bullish above 70, bearish below 30
  • Bearish and bullish divergences from price
  • Determine potential support and resistance zones

RSI works best together with price patterns or other indicators. Common combos are RSI with moving averages and Fibonacci retracements. RSI suits swing trading and ranging markets well.

3. Bollinger Bands (BB)

Bollinger Bands plot standard deviation-based channels above and below a moving average. The bands widen during high volatility and contract during low volatility periods.

Bollinger Band Strategies:

  • Price of an asset hitting upper or lower band indicates overbought/oversold
  • Closing outside the bands signals strong momentum
  • Bounce trades off the bands in rang
  • Use bands to confirm breakouts

Bollinger Bands define the trend direction and trading range. BB works for trend and volatility strategies across timeframes.

4. Ichimoku Cloud

The Ichimoku Cloud combines multiple lines to provide trading signals:

  • Conversion (blue) and Base Lines (red) – Act as moving averages and support/resistance
  • Leading Span A (green) and Leading Span B (red) – Identify momentum and future support/resistance
  • Lagging Span (purple) – Historical support/resistance

Ichimoku Cloud Strategies:

  • Price above Cloud signals uptrend; below signals downtrend
  • Flat/thin Cloud indicates ranging, thick Cloud shows volatility
  • Cloud ambiguity traps false breakouts
  • Lagging Span and Kumo Twists highlight reversals

The Ichimoku Cloud condenses trend, reversal, momentum, and support/resistance analysis into one indicator. However, it works best with other indicators to confirm signals.

5. Stochastic RSI

The Stochastic RSI combines momentum analysis with overbought/oversold levels. It uses RSI values to plot trading signals:

  • Overbought above 80 and oversold below 20
  • Crossovers of the %D and %K lines

Stochastic RSI Strategies:

  • Fade levels above 80 and below 20
  • Trade crossovers for momentum shifts
  • Divergences predict trend changes

Stochastic RSI works well for mean reversion strategies and confirming RSI divergences. Use it with RSI and oscillators like MACD.

6. OBV (On-Balance Volume)

On-Balance Volume tracks cumulative buying and selling volume. OBV rises when volume confirms price gains, and falls on heavy volume with price declines.

OBV Strategies:

  • Uptrends with rising OBV show strong upside conviction
  • Downtrends on low OBV may reverse up
  • Divergences between OBV and price highlight weakness

OBV defines momentum and sentiment. Use it to confirm trend strength or spot impending reversals.

7. VWAP (Volume Weighted Average Price)

The Volume Weighted Average Price benchmarks the average price weighted by volume across a trading session. VWAP acts as a dynamic support/resistance level.

VWAP Strategies:

  • Trade pullbacks to VWAP in strong trends
  • Fade trades when price deviates excessively from VWAP
  • Monitor intraday volume surges relative to VWAP

VWAP is most useful for intraday traders to plan entries and exits. It also suits algorithmic trading systems well.

These 7 leading indicators cover the core types of market analysis like trend, momentum, volume, and volatility. Now let’s examine more advanced indicators for specific scenarios.

crypto graphs and indicators illustration

Creating Trading Strategies with Indicators

Getting the most out of indicators requires combining them into trading systems with defined rules, risk management, and criteria for strategy optimization. Follow these steps:

Find Indicators that Complement Each Other

Choose indicators providing unique analysis that also work well together, such as:

  • Trend direction – moving averages, ADX
  • Momentum indicators – MACD, RSI
  • Volatility – Bollinger Bands, ATR
  • Volume – OBV, VWAP

Using indicators with conflicting signals will lead to many false signals. Instead find indicators that validate and reinforce each other.

Define Rules for Entries, Exits and Position Sizing

Create objective rules dictating actions based on indicator signals and risk management. For example:

Entries: Buy when the 50-day MA crosses above the 200-day MA and RSI crosses below 30.

Exits: Sell when RSI goes above 70 or if price closes below the 50-day MA.

Position Sizing: Risk 1% of capital per trade. Set stop loss below recent swing low.

Following a strategy with specific rules minimizes emotion impacting trading decisions.

Optimize Strategy Parameters and Walk Forward Test

Fine-tune indicator settings and rules using backtesting and walk forward analysis to maximize performance:

  • Indicator lookback periods and signal levels
  • Rank indicators by performance for primary signals
  • Optimize entry/exit points and stop loss placement

The end result should be a strategy exceeding buy and hold returns over multiple years and market conditions. Parameters producing the highest historical profit factor and Sharpe ratio are ideal.

Maintain Detailed Statistics to Track Performance

Keep records of performance metrics like win rate, profit factor, drawdowns, risk-adjusted returns, etc. Review stats regularly to detect deterioration before losses mount. Refine struggling strategies.

Following this disciplined process leads to high-probability and profitable indicator strategies.

Backtesting Indicators and Strategies

Historical backtesting enables traders to optimize and validate indicator strategies before risking capital. Follow this process:

Run Long-Term Tests Across Market Conditions

Cover several years of varying price action – uptrends, downtrends, ranges, high and low volatility, changes in daily volume, etc. Avoid data-mining limited time periods.

Review Worst Drawdowns

Evaluate the strategy’s largest historical drawdowns. Are the size and length of drawdowns acceptable according to your risk tolerance? The strategy should be robust or include hedging tactics to minimize drawdown impacts.

Extensive backtesting evidence across years of cryptocurrency cycles gives confidence in a strategy before allocating significant capital.

Pitfalls and Limitations of Crypto Trading Indicators

While indicators are powerful trading tools, they aren’t magical trading systems. Beginners should be aware of these common pitfalls:

No Guaranteed Success on Every Trade

Indicators provide probability-based signals, not certainties. Even the best crypto strategies will encounter losing trades. Focus on long-term positive expectancy.

Over-Reliance on Indicators

Don’t forget to also analyze price trends, support/resistance, sentiment, fundamentals, etc. Indicators work best as part of a holistic process.


Trading every indicator signal leads to overtrading and excessive fees. Only take high-conviction signals aligned with the larger trend. Quality over quantity.

Failing to Confirm Signals

Require agreement between multiple indicators and technicals before acting. For example, only trade MACD crossovers with confirming RSI divergences.

Not Tracking Strategy Performance

Meticulously track trading records, stats, and performance metrics. Review regularly to detect deteriorating performance and when to refine strategies.

Curve-Fitting Parameters

Avoid excessive optimization that curve-fits. Walk forward test strategies using “out of sample” data to verify parameters stand the test of time.

Mastering indicators takes screen time and practice. But proven strategies reward disciplined traders. Follow robust backtesting and tracking processes.

Final Thoughts on The Best Crypto Indicators

Indicators distill price action into objective trading signals to overcome cryptocurrency volatility and biases. The most time-tested indicators include Moving Averages, RSI, Ichimoku Cloud, Bollinger Bands, Stochastics, OBV, and VWAP. Combine indicators that reinforce each other into strategies with defined rules and risk management.

No approach works 100% of the time. But backtesting indicators on several years of data builds statistical confidence. Indicators shine most when part of a holistic process also considering fundamental drivers.

Learn high-probability setups through leading crypto indicators. Adopt a probabilities and process-focused mindset. Mastering both indicators and risk management is the key to trading success.

Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.