Bitcoin Trading Indicators

The 5 most important indicators for trading

Here are presented the 5 most popular trading indicators. It is very succinct and just entered the indicators and above all explains when a buy and when a sell-signal is present.

Trading indicators

1. SMA (Simple-Moving-Average)

SMA is the simple moving average, as the English term implies. The SMA is relatively popular and easy to calculate. It is calculated by adding the average closing prices (closing prices are practically the last prices for a given period: hour, day, week etc.) of a certain time interval and then dividing by the time interval.

Here the interpretation is also quite simple:

  • Prices above the moving average = bullish (buy-signal)
  • Prices below the moving average = bearish (sell-signal)

2. EMA (Exponential-Moving-Average)

The EMA is a bit more complex than the SMA. The calculation is similar to the SMA. So the sum of the closing prices divided by the corresponding price bars, but here the younger courses are weighted more heavily than the older courses. This allows a faster response of the indicator to more up to date prices. In general, the interpretation of EMA is similar to SMA.

However, you can also represent the two in a chart and look at their course.

  • If the EMA crosses the SMA from top to bottom, it is more of a sell-signal because the EMA reacts more strongly to the more recent prices
  • a buy-signal may arise when the EMA crosses the SMA from bottom to top

3. MACD (Moving-Average-Convergence-Divergence)

MACD is probably one of the best-known indicators in a chart analysis. It is an indicator that represents the convergence of moving averages.

The blue line is the MACD line. This is determined by subtracting the exponential moving average of the last 26 days from the exponential moving average of the last 12 days. (By the way, these averages are also called EMA’s (“Exponential Moving Average”))


MACD = exp. MA (12) – exp. MA (26)

The red line is the 9th moving average. This line is also called the “signal line” because as soon as this line is touched by the MACD, it may suggest a buy or sell signal. If the EMA (9) is crossed from top to bottom by the MACD (thus the difference between EMA (12) and EMA (26)) this indicates a downtrend and is more of a bearish signal. This is exemplified in Figure 1. Marked in yellow, you can see intersections of the MACD with the 9th EMA. At the first marker, the blue line (MACD) intersects the red line (9th EMA) from top to bottom.  => downtrend => sell-signal

If the MACD crosses the 9th EMA from below, this indicates an uptrend, which consequently leads to a buy signal (2nd marker in the figure).


These intersections and the associated buy or sell signals are the quintessence of traders.

However, for the sake of completeness, the following points are mentioned:

  •  A positive MACD speaks for a bullish mood (the opposite is true for the negative MACD)
  •  If the positive MACD continues to rise, it speaks for an increasingly bullish market environment (the negative continues to fall -> stronger bearish market environment)
  •  If the positive MACD falls, it speaks for a flattening uptrend (the opposite is true for the negative MACD)
  •  So you can say that with increasing distance of the MACD’s from the signal line the trend intensifies. If the distance becomes smaller, the trend becomes weaker. (Convergence / Divergence)

4. RSI (Relative Strength Index)

What does the RSI tell us? Put simply, the RSI tells us how good the value of each coin is in relation to its price. (Yes, price and value may be different. Price is what you pay for, value is what you get.) For simplicity’s sake, here’s no concrete calculation of the RSI, because much more important is the interpretation of it.

The RSI value is between 0 and 100. There is a barrier so that a value between 0-30 is referred to as oversold, 30-70 says rather little and is considered more “normal”, and above 70 the value is called  as overbought.

  • sell-signal: when the RSI cuts the 70’s mark from top to bottom
  • buy-signal: when the RSI rises from the 30’s range from bottom to top
  • In addition: If the value of a cryptocurrency drops, while the RSI rises, it indicates a trend change


5. Bollinger Band

The exact calculations of this indicator will be omitted here. To put it simply, you can imagine this by plotting the SMA (20) in the chart and above that is the upper “Bollinger Band” and below the SMA (20) is another line, namely the lower “Bollinger Band”.

The quintessence for traders:

  • If the price touches the upper band: sell-signal
  • If the price touches the lower band: buy-signal
If you want to apply the knowledge and are looking for a good trading bot, then take a look at our Top 3 Trading Bot comparison.



Buy and Hold vs. Trading

What does “HODL” mean? Actually, it is a typo and should be called “hold”. This term originated in a forum 2013 when a user published an entry about Bitcoin’s crash at the time. In his heading of the post (“I am HODLING”) he made the supposed spelling mistake. This post was spread quickly and Memes came into being and the term “Hodl” was born.

So, this term stands for keeping its coins, even in times when prices are falling. This approach is not new, because the buy and hold strategy has been around for some time and is applied to e.g. stocks and other investments. It is expected to generate profits over a long period of time and it’s a bit more relaxed than trading in contrast.

Hodl or Trading?

But the “Hodl” strategy also carries risks, because the market can continue to lose value for years and so the motivation is dwindling and some “hodlers” capitulate and then sell with (heavy) losses. In order to minimize the risk trading comes into play here. So, trading coins are not just bought and held for months or years, the time horizon is much shorter. Since the price of e.g. Bitcoin even in the bear market does not sink like a straight line, but fluctuates with up and down, it is possible to make profits even with overall falling prices.

Here you can find the best trading bots in comparison

Here’s a fictitious example:

Below we’ll look at two people (Person A and Person B) who both buy bitcoin at a fictitious bitcoin price of $ 20,000 in January. However, the two people pursue different strategies.

Person A buys the bitcoin and wants to hold the bitcoin until it gains value.

Person B buys a Bitcoin but wants to trade with Bitcoin. We simply assume that the person trades on a monthly basis.

Now let’s take a look at the portfolio development of both persons over one year.

Person A has bought a bitcoin and keeps this bitcoin with the hope of value enhancement. At the end of the fictitious year, the value of Bitcoin is $ 6,000. Person A thus has a (book-) loss of  $ 14,000 after one year.

Person B buys a bitcoin with the intent to trade from the beginning. As seen in the picture, the person sells the Bitcoin on a first price recovery for $ 16,000. Then the person analyzes the market and waits for a buy signal/entry point. In May it is the right time and the person buys again the one Bitcoin however for $ 7,000 and sells in June this for $ 9,500. The person then waits for an entry point, which is $ 5,000 in August. In the following month, it will be sold again for $ 5,600. Last, the person buys in November for $ 4,200 and sells for $ 6,000. What does the balance look like?

Person A (Buy and Hold):

Buy $20.000  →Value end of the year $6.000

= (book-) loss -$14.000

Person B (Trading):

Buy $20.000 →Sell $16.000

Buy $7.000 →Sell $9.500

Buy $5.000 →Sell $5.600

Buy $4.200 →Sell $6.000

= + $900

Even if the course continues to fall after that, it will always recover for a short while and sometimes rise again. No price is linear but up and down (with a downtrend the “down” is longer and steeper).


Despite the same starting conditions (same purchase time and price), the final result is very different. Person A has a loss of $14,000, whereas Person B is $900 plus. Person B thus is able to take profits even if the market is in a downward trend and can realize profits again and again. Person A in such a situation unfortunately has the disadvantage that it has to accept (book-) losses because of the initial $20.000 is only $6.000 there. To sell in such a case would result in the person realizing 70% loss. Continuing to wait could lead to increased losses.

Of course, this example is greatly simplified and it is assumed that the trader finds the “optimal” entry and exit points. But in this example, we also assumed that Person B acts monthly. So what if you act weekly, daily, hourly or even every minute, and always more often takes a margin?

Unfortunately, such people as Person A are often those who panic at such a downtrend and sell at a loss, or just do not give up hope and keep the coins with the hope at some point maybe to be again at plus-minus zero and to exit the market. So, you see the “Hodl” strategy is suitable when the market is constantly going up or you are investing very long term. Because over many years one minimizes the risk, because both in the classical stock market as well as in the crypto market the course rises over many years, even if it is some years in the downward trend.

In order to take less risk and also to realize profits in a bear market, trading is ideal for this. Of course, the trade must be well considered.