bitcoin

3 Technical Indicators to Help Time Bitcoin’s Price Action

With the upcoming launch of the Digitex Futures Exchange, our team has been focused on creating educational material to allow traders and market participants alike to benefit the most from zero-commission trading.

In our beginners’ guide, for instance, we explain the basics of how to trade crypto derivative products and give you a breakdown of the platform.

Now, we want to help you understand how different technical indexes within Digitex Futures can help you time your next trade.

3 Technical Indicators to Supercharge Your Bitcoin Trading

One of the most widely used technical indicators among traders is the Bollinger bands. This analysis tool is defined by a set of two standard deviation lines and a simple moving average. Its popularity relies on the ability to identify that momentum is building up for a period of high volatility.

When the price action of a given asset goes through a stagnation phase, the Bollinger bands tend to squeeze. Squeezes are indicative of periods of low volatility and are typically succeeded by wild price movements. The longer the squeeze, the higher the probability of a strong breakout.

A look at BTC’s 5-min chart reveals that the Bollinger bands are squeezing. Since this technical index does not provide a clear path of where BTC could be headed next, the area between the lower and upper band is a reasonable no-trade zone.

A decisive move above or below this area will determine the direction of the trend.

Bitcoin USD price chart
Bollinger Bands Squeeze Signaling High Volatility. (Source: TradingView)

Nonetheless, when taking into consideration the parabolic stop and reverse, or “SAR,” we can estimate that the direction of Bitcoin is currently bullish despite the low levels of volatility.

Every time the stop and reversal points move below the price of an asset, it is considered to be a positive sign. On the flip side, when the SAR points move above the price of a given asset, it can be viewed as a bearish signal.

By taking in aggregate the Bollinger bands and the stop and reversal system, we can assume that there is a higher probability that Bitcoin will go up when volatility strikes back.

But how high can it go?

Bitcoin USD price chart
Stop and Reversal Points Turn Bullish. (Source: TradingView)

To answer this question, we can use the Fibonacci retracement indicator. This metric is based on a sequence of numbers expressed by ratios between the numbers in the series, according to Investopedia.

By plotting two extreme points, which are the most recent swing low at $9,475 and the peak of $9,820, the Fibonacci retracement indicator provides critical ratios that can be considered areas of support and resistance.

A bullish impulse that allows Bitcoin to move above the overhead resistance could see it rise towards the 127.2%, 141.4%, and, most importantly, the 161.8% Fibonacci retracement level. These resistance barriers sit approximately at $9,900, $9,960, and $10,030, respectively.

Bitcoin USD price chart
The Fibonacci Retracement Indicator Suggests the Next Major Resistance Sits at $10,030. (Source: TradingView)

At press time, we can see that the stop and reversal points accurately predicted that Bitcoin’s trend was bullish despite the consolidation phase. As the bellwether cryptocurrency broke above the resistance represented by the upper Bolliger band, it seems to be marching towards the 127.2%, 141.4%, or 161.8% Fibonacci retracement levels.

Bitcoin USD price chart
The 3 Indexes In Question Seem to Work Effectively. (Source: TradingView)

Individually, these different technical indicators may seem to provide an ambiguous outlook about future Bitcoin prices. Taken in aggregate, however, they can provide actionable information about when to enter and exit trades on the Digitex Futures Exchange.

With a good dose of patience and high levels of concentration on the charts, it is possible to minimize risk while profiting from Bitcoin’s price action.