The Ultimate Guide for Understanding Crypto Indicators

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Many crypto indicators help Web3 traders and investors decide whether or not the cryptocurrency is favorably shifting

Indicators determine past and current trends, which are necessary for checking out before crypto trading, investing, and potentially purchasing non-fungible tokens (NFTs).

Some of the best crypto trading indicators include:

  • Choppiness Index (CHOP)
  • Relative Strength Indicator (RSI)
  • Moving Average Convergence Divergence (MACD)

But what exactly are indicators, and how can they help you?

The Importance of Indicators

Crypto indicators help minimize risks when trading and investing in cryptocurrencies. In addition, they are tools that can help crypto novices and enthusiasts better understand the market and help make more informed decisions regarding when to buy and sell digital assets, like NFTs.

Each crypto indicators bring a little something different to the table. For example:

  • CHOP indicates whether a cryptocurrency is trending or ranging
  • RSI identifies the relative strength of an asset over time
  • MACD gauges the power of a cryptocurrency price movement

Indicators can help crypto investors and buyers to identify the high and low activity of cryptocurrencies, observe trends, notice potential buy and sell signals, and more.

Note: No indicator is perfect, so using a combination to get the most accurate market picture is helpful. Your trading will likely be much more successful once you implement indicators.

How to Use Choppiness Index (For Example)

To better understand crypto indicators, knowing how to read such charts is helpful. All indicator charts represent the cost of a crypto asset over time, whichever one you pick to study.

Look at this Phemex graph, for example. As you can see, the chart indicator identifies the trends of BTC to USDT this week, with BTC trading at $19156.27:

Crypto Trading Indicators

To find the CHOP indicator, click “Indicators” which can be found out the top of the chart. A new window will then arise, presenting a search bar. Type “Choppiness Index” into the search bar, and the indicator will pop up.

Note: This process applies for all indicators. If wanting the RSI, type in Relative Strength Indicator, etc. You can also use more than one indicator at once.

Now you have clicked Choppiness Index, you will notice a blue trend line at the bottom of the graph. This is the Choppiness Index:

The Choppiness Index shows the trend line for BTC oscillated between 20 and 60 between the beginning of 2021 and the end of May—representing a choppy market (state of consolidation).

The higher the line (April 2022) represents a lousy time for BTC, showing the market undesirable. In contrast, the lower line (beginning of 2021 and July this year) shows an encouraging time for BTC.

A value of 38.2% or below indicates a strong trend (a bullish market) likely to soar (a good time for crypto traders and investors to maintain positions or invest). On the other hand, a ratio of 61.8% or above shows that the market lacks a clear direction, and a new trend may shortly take over, representing a bearish market that crypto enthusiasts should stay clear of.

When the chart’s blue line shows a sudden uplift from levels 40 to 50, the graph shows a change within the industry—for instance, the market switches between consolidations and trends, proving an uneasy time for BTC.

Although, if the middle part of the indicator were to be above or below 50 and continued being that way, the likeliness of BTC (or any other cryptocurrency) remaining strong would be high.

The price deviation is also easily changeable to better understand the cost change of BTC using the indication bar. Click on the gear-looking symbol at the top of the graph and input customized price settings:

Click style and type in the range shown if wanting to tweak the Upper Limit and Lower Limit. You can change the limit of any indicator you decide to pick.

To simplify the process, simple steps for using CHOP include:

  1. Pick a trading pair (BTC/USDT, SOL/USDT, ETH/USDT)
  2. Choose a time frame suitable for personal requirements
  3. Click on “Indicators” at the top of the graph
  4. Input “Choppiness Index” before clicking to activate
  5. Check how the line moves, and whether or not it indicates a strong trend or consolidation

Now we understand how to check BTC/USDT trends using CHOP on Phemex, let’s look at how the price of ETH has changed following the recent Ethereum merge this week, using the same trading platform and above process. Although, differently, using the RSI indicator:

This example shows Phemex paired with ETH/USDT and ETH currently trading at $1349.50 USDT. The purple line at the bottom of the graph shows the RSI.

The RSI is typically overbought when above 70 and oversold when below 30. Unfortunately, the indicator is currently on 30. Therefore, traders looking for investment opportunities shall wait for RSI values that hit 30 or fall below that level before investing or trading Ethereum. Although the recent merge leading up to Ethereum 2.0 is showing positive signs in the market. 

When the RSI rises above 50, a new trend is likely brewing, causing a threat to the sector.

Note: You can easily change the data range to grasp better how the market is evolving by clicking the downward arrow at the top of the graph and changing the time and dates.

The RSI is a descriptive indicator rather than necessarily an indicator of a future trend. The graph’s upside is that it gives a general description of recent price movements, making it practical, assuming the dynamics of markets stay the same. However, in the case of shifting market dynamics, for example, a ‘Black Swan Event,’ RSI becomes next to useless.

The RSI is extremely popular amongst private investors from various sectors. In non-crypto markets, trend lines are drawn to show closed parties. Differently, the market is always open in crypto, showing trend lines and allowing trading around the clock. Most trends are at their highest when global market activity is high.

The indicator works well with other indicators, such as the MACD. However, unlike RSI, MACD measures the relationship between two Exceptional Moving Averages (EMAs), while the RSI solely measures price change compared to recent highs and lows:

As a result, both indicators provide analysts with a fuller technical picture of various sectors when combined.

To Summarize

CHOP is a valuable and undemanding crypto trading indicator. The graph helps cryptocurrency traders understand current market trends, which have the potential to lead to successful investments.

Although CHOP identifies trends well, the indicator does provide little context regarding whether or not certain conditions are an advantageous opportunity.

In contrast, the RSI indicator supports crypto traders in identifying oversold and overbought cryptocurrencies. However, despite doing a great job identifying the opposing conditions, it doesn’t show enough context when deciding whether or not the crypto trading conditions are an opportunity worth investing.

Because all indicators have contrasting benefits, alongside numerous pros and cons, using more than one indicator is most beneficial for more successful future trades and investments.

On the plus side, knowing which cryptocurrencies are stable in the market can also help crypto traders and investors determine which NFT projects are worth purchasing.

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