In this section I’m going to cover the indicators and chart setup I use specifically for Crypto Markets. Will be using TradingView as it has an extensive library of tools and indicators.
Open your market chart, near the top you will find an indicator search icon. For our first indicator input the following;
This indicator combines Ichimoku system, moving averages, and bollinger bands all in one. Next we want to change the default settings to something more optimal.
Click the settings icon next to the indicator in the top left of screen, then we want to adjust the moving averages to 10, 20, 50, 100, 200. Personally I only use the 200 as I prefer less clutter on the screen, but you can use any of these common moving average lengths as ‘dynamic support and resistance’ lines.
Next we want to adjust the Ichimoku settings - as the default settings are suited to a traditional market, not 24/7 crypto markets. You can read more about this here > My Top 3 Favourite Indicators for Technical Analysis of Cryptocurrencies | Hacker Noon
We want to change this to 20, 60, 120, 30, as shown in the image above. Personally I only tick to show the Kinjun line and Cloud - again, to reduce clutter and highlight the more significant parts of the tool that price tends to respond more consistently too.
A study was done with over 100,000 backtesting of individual indicators for their reliability - these ranged from DMI’s, StochRSI, MACD, Bollinger Bands, RSI, CCI, A/D, and many others. What was found that most were a coinflip, with the exception of Bollinger Bands, RSI, and MACD if used correctly. In addition, you don’t want several indicators that are all measuring the same thing - i.e. Momentum. You want a combination of Volatility, Volume, and Momentum otherwise you run the risk of confirming weak confluence as something with higher probability when it’s not. I see this all the time - people using 5-6 momentum indicators and when they all line up they think they have something special. The reality is, they will generally always do this as they run of very similar formulas/calculations. Lets move on…
What we want to add next is the RSI, MACD, and Stochastic. Important to note, a ‘Stochastic’ is not the same as the ‘StochRSI’. A Stochastic is calculating off the last price data of the default 14 period lookback, a ‘StochRSI’ is calculating off the last value of the RSI itself over the default 14 period lookback. The lookback period is simply the number of bars/ticks on any given timeframe that you are viewing. So a 14-period lookback is considering the last 14 bars. This is why shortening the lookback period results in a more responsive but ‘noisy’ indicator, and a longer lookback period smooths out the noise with a wider data reference to average out. This is important to understand when price moves from a long flat range into a breakout trend.
So we have our Ichimoku system setup correctly, our bollinger bands, and EMA’s, RSI, MACD, and Stochastic. If you need to drop one to keep in the free-version limit of trading view, I would remove the stochastic first. After you have all these, you can play around with the visual color themes and gradients if you wish, but lets get into how to use it all.
The RSI (Relative Strength Indicator)
Here is the first mistake most traders are taught to do - the RSI is not best used for “Overbought” and “Oversold”. That’s right, it is almost useless for this purpose with a 50-50 probability of being wrong/right. So what do you use it for?
Divergence! - RSI Divergence is an incredibly powerful way to spot price pivots - and the great this is it can do it with good warning ahead of major swings. Often found at tops and bottoms, and will immediately improve any traders success by learning this one simple thing. If I was only allowed to have 1 indicator on a chart - it would be the RSI, and I would be using it for spotting RSI divergence. Now the trouble people have is basically learning how to plot it, it takes some practice - but here is a cheat sheet;
Regular Divergence is the ‘strongest’ and with high probability it often results in a price pivot. Hidden divergence and Exaggerated divergence is significantly weaker, but still worth paying attention to. This is what you really use and RSI for, and also a Stochastic. You can even apply it to MACD/Signal lines but I don’t recommend that. What we want to use here is the best of the best, and filter out methods that may be good but not great. Lets find two examples of both bearish and bullish RSI divergence.
Bearish RSI Divergence
Just recently we can see on BTC Daily chart that we formed a higher high with price, and a lower high with the RSI. What followed was a sell off back to the Kinjun line and ichimoku cloud.
Bullish RSI Divergence
The middle example here at the BTC dip is Bullish divergence, but I thought I would add in a few more examples where price action is literally pivoting at both Bearish and Bullish divergence. Once you get the hang of it, you will spot them all over the place. An important rule here is to wait for the RSI to close with a slight pivot to confirm, otherwise price can continue in the direction and invalidate what would of otherwise been a divergence pivot.
So do you use RSI at all of ‘Overbought’ and ‘Oversold’? Well yes, but the key question you need to ask is what came before it? Is price breaking out of a range, or has it been in a matured trend? Remember the RSI is ‘Relative’ to the 14 bars before it. So when it is breaking out of a range and signaling as ‘Overbought’, this should be ignored and instead considered as a ‘Sign of Strength’. Yet on a mature trend, the RSI has had time to adjust to the trend movement, and this is where you would start to consider overbought/oversold as more reliable - especially if divergence is also present.
Here is an example of this;
The RSI is giving a false-positive due to the relative range prior to the breakout of that range. Price continued, so this is where you should ignore it - when price breaks out of a prior range, read it as a sign of strength, not the opposite.
As this has been a rather lengthy post already, I’ll leave at this and pick up on the next post with Bollinger bands and Ichimoku system.
DISCLAIMER: Content within this thread is intended for educational purposes only, and purely a result of personal research and experience of individuals that are not registered or licensed brokers. Methodologies and techniques presented within the entirety of this thread are subject to inaccuracy and variability of result. It is advised that you do your own research and verify any information and/or assertions your find in this thread with a professional financial adviser. Past performance is not indicative of future results, the following material hereafter is not any substitute for professional advice. All authors of any material within this thread bare no liability whatsoever for any loss or damage you may incur.