Article 7.2: Basic Indicators & Patterns Moving Averages, RSI, MACD, Support & Resistance
Introduction
Technical indicators and patterns are the foundation of technical analysis (TA). They help traders analyze price movements, identify trends, and make informed trading decisions. In this article, we’ll cover four of the most essential tools used in crypto trading:
Moving Averages (MA)
Relative Strength Index (RSI)
Moving Average Convergence Divergence (MACD)
Support & Resistance Levels
Understanding these tools will help you read charts effectively and spot trading opportunities.
1. Moving Averages (MA) – Identifying Trends
What are Moving Averages?
A moving average (MA) is a technical indicator that smooths out price data by creating a constantly updated average price over a specific period. It helps traders identify the general direction (trend) of an asset.
Types of Moving Averages
Simple Moving Average (SMA)
A basic average of past prices over a set period (e.g., 50-day SMA).
Example: A 50-day SMA adds the closing prices of the last 50 days and divides them by 50.
Works well for identifying long-term trends.
Exponential Moving Average (EMA)
Similar to the SMA but gives more weight to recent prices, making it more responsive to price changes.
Example: The 20-day EMA reacts faster to price movements than the 50-day SMA.
Ideal for short-term traders looking for quick signals.
How to Use Moving Averages in Trading
Golden Cross (Bullish) – When a short-term MA (e.g., 50-day) crosses above a long-term MA (e.g., 200-day).
Death Cross (Bearish) – When a short-term MA crosses below a long-term MA.
Trend Confirmation – If price stays above an MA, the trend is bullish; if it stays below, the trend is bearish.
📌 Example: In a bull run, Bitcoin’s price often stays above the 200-day moving average, confirming the long-term uptrend.
2. Relative Strength Index (RSI) – Measuring Momentum
What is RSI?
The Relative Strength Index (RSI) is an oscillator that measures the speed and change of price movements. It helps traders determine whether an asset is overbought (potential sell signal) or oversold (potential buy signal).
How RSI Works
RSI ranges from 0 to 100.
Above 70 → Overbought (price may correct down).
Below 30 → Oversold (price may bounce up).
Between 30-70 → Neutral (no strong momentum).
How to Use RSI in Trading
Overbought Signal – If RSI crosses above 70, traders anticipate a potential price drop.
Oversold Signal – If RSI drops below 30, it may indicate a price rebound.
Divergence Strategy – If price is rising but RSI is falling, it suggests weak momentum and a potential reversal.
📌 Example: If Bitcoin’s RSI drops below 30 after a big sell-off, traders may start buying, anticipating a rebound.
3. Moving Average Convergence Divergence (MACD) – Spotting Trend Reversals
What is MACD?
The Moving Average Convergence Divergence (MACD) is an indicator that identifies trend reversals by analyzing the relationship between two moving averages. It consists of:
MACD Line – Difference between the 12-day EMA and 26-day EMA.
Signal Line – A 9-day EMA of the MACD line.
Histogram – Shows the difference between the MACD and signal line.
How to Use MACD in Trading
Bullish Crossover – When the MACD line crosses above the signal line → Buy signal.
Bearish Crossover – When the MACD line crosses below the signal line → Sell signal.
Histogram Expansion – A growing histogram means increasing momentum in the trend direction.
📌 Example: If MACD shows a bullish crossover while Bitcoin is forming higher lows, it’s a strong confirmation of a trend reversal.
4. Support & Resistance Levels – Finding Entry & Exit Points
What Are Support & Resistance?
Support is a price level where buying interest is strong enough to prevent further declines.
Resistance is a price level where selling interest prevents the price from rising further.
How to Identify Support & Resistance Levels
Previous Highs & Lows – Historical price points often act as support or resistance.
Round Numbers – Many traders place orders at round numbers like $50,000 BTC, making them key levels.
Trendlines – Diagonal lines connecting higher lows (support) or lower highs (resistance).
Moving Averages – The 200-day moving average often acts as dynamic support or resistance.
How to Use Support & Resistance in Trading
Buying at Support – If price bounces off a strong support level, it’s a good buying opportunity.
Selling at Resistance – If price struggles to break resistance, it might be a good selling point.
Breakouts & Fakeouts – If price breaks above resistance, it could signal an uptrend. But beware of fake breakouts where price quickly falls back.
📌 Example: If Bitcoin finds strong support at $40,000, traders might place buy orders, expecting a rebound.
Combining Indicators for Stronger Signals
Using one indicator alone isn’t always reliable. Pro traders combine multiple indicators to confirm trends:
✅ Example of a Strong Buy Signal
Price bounces off a support level.
RSI is below 30, showing oversold conditions.
MACD shows a bullish crossover.
Price crosses above the 50-day EMA.
This combination increases the likelihood of a successful trade.
Conclusion
Understanding moving averages, RSI, MACD, and support/resistance is crucial for making better trading decisions. By combining these indicators, traders can:
✔ Identify trends
✔ Find optimal entry & exit points
✔ Reduce risk and improve trade accuracy
Up next: Fundamental Analysis in Crypto – Evaluating Projects, Tokenomics & News Impact. Let me know if you want me to add anything before we proceed! 🚀