Key Takeaways:
- For those in over their head with crypto technical analysis, consider these four beginner-friendly tools, which may help to understand crypto market trends.
- The crypto Rainbow Chart offers historical reference points that may help with understanding where a cryptocurrency might be in its market cycle.
- RSI measures the speed and change of price movements, identifying potential buying or selling opportunities based on overbought or oversold conditions.
- The Altcoin season and Fear & Greed Index provide insight into market sentiment, helping traders gauge when it might be opportune to buy or sell altcoins or Bitcoin.
Measuring Crypto Market Trends
It’s the one thing every trader, newb or pro, has in common: We all want to know which way the market will go. While we don’t have a crystal ball, we’ve got the next best thing — analytics tools. Seasoned traders often rely on technical analysis, but being able to read crypto charts is a skill that takes time to learn.
For those wanting to trade now but not go into things blindly, here are four proven yet easy-to-understand technical analysis tools to help you understand trends in the crypto market.
Before we get into it, a word of wisdom: Even the best analytics tools can’t tell the future and only give an indication of what is likely to happen at best. Always trade with prudence, don’t rely on only one indicator, and never buy more than you can afford.
With that out of the way, here are our four top picks of crypto analytics:
Crypto Rainbow Chart
The Rainbow Chart provides traders with a full spectrum of trends by visualising a range of simple moving averages (SMAs) of different lengths. The foundation of the Rainbow Chart is a 2-period simple moving average (MA). Recursive smoothing is then applied to this initial SMA, and the subsequent nine Rainbow Moving Averages are based on the previous SMA, each with a different length. The recursive smoothing allows the indicator to represent a comprehensive view of current trends in the market.
The crypto Rainbow Chart is a technical analysis tool used in the cryptocurrency market to visualise historical price movements of a cryptocurrency and identify potential buying and selling opportunities. It’s important to keep in mind that this chart is not a predictive tool, but rather a historical reference of where a particular cryptocurrency might be in its market cycle.
As an example, the Bitcoin Rainbow Chart is a visual representation of the market cycle for Bitcoin over time. It uses the colours of the rainbow to depict the stages of a typical market cycle, ranging from a bear-market bottom (blue) to euphoria (red).
For beginners, understanding the Crypto Rainbow Chart involves recognising patterns of market sentiment and buyer behaviour.
During the accumulation phase, prices are typically low, and traders slowly start to accumulate positions. As prices rise, the market enters the expansion phase, which can lead to optimism and ultimately euphoria. This may then be followed by a correction, as prices can become overinflated. If this occurs, it can lead to a bear market and the accumulation phase starting again. In the snapshot above, we have exited the accumulation phase, and the Rainbow Chart indicates the best plan of action is to HODL.
Learn more about the four phases of a crypto market cycle.
Crypto RSI
The Relative Strength Index (RSI) is a popular momentum indicator used in technical analysis to measure the speed and change of recent price movements in a cryptocurrency with the same representation in traditional finance. RSI is displayed as an oscillator on a scale of 0 to 100, providing insights into whether an asset is overbought or oversold based on its recent price momentum over a specified period, usually 14 days.
For beginners, the RSI serves as a valuable indicator to identify potential buying or selling opportunities in the market. When the RSI value exceeds 70, it suggests that the cryptocurrency may be overbought, indicating a potential sell signal. Conversely, when the RSI falls below 30, it indicates that the cryptocurrency may be oversold, presenting a potential buying opportunity.
To use the Crypto RSI effectively, consider RSI signals in the context of broader market conditions and avoid making decisions solely based on RSI readings. Additionally, combining RSI analysis with fundamental research can provide a more comprehensive understanding of an individual cryptocurrency’s potential price movements, as other factors like upcoming token drops or roadmap milestones (upgrades, halvings, etc.) can also influence its price.
Altcoin Season
The Altcoin Season Index is a metric designed to assess the performance of top altcoins relative to Bitcoin. Altcoin seasons typically occur when altcoins outperform Bitcoin in terms of price appreciation in a certain period. The index calculates the percentage of top altcoins (e.g., top 50) that are outperforming Bitcoin over a specified period (e.g., 90 days), providing insight into whether the market is favouring altcoins or Bitcoin. If 75% of the top 50 coins perform better than Bitcoin in the previous season (90 days), it’s considered an Altcoin season.
During Altcoin season, traders may find opportunities to diversify their portfolios and potentially achieve higher returns due to the lower market capitalisation of altcoins compared to Bitcoin. To use the crypto Altcoin Season Index effectively, monitor it regularly to identify potential opportunities or trends in the market. However, it’s important to remember that the crypto market is volatile, and the index should be used in conjunction with other analysis tools.
Additionally, we recommend conducting research on individual altcoins before taking action.
Crypto Fear & Greed Index
The Crypto Fear & Greed Index is a sentiment analysis tool that measures the emotions and attitudes of market participants towards the cryptocurrency market. It ranges from 0 to 100, with lower scores indicating fear and higher scores indicating greed. This index aggregates various data points like market volatility, trading volume, social media sentiment, and surveys to gauge market participant sentiment.
For beginners, the Crypto Fear & Greed Index serves as a valuable tool for understanding the prevailing market sentiment and can be used to support decision-making. For instance, during a Fear Index era, valuable assets might be undervalued due to panic selling. On the other hand, during a Greed Index era, investments might be overvalued due to over-optimistic market sentiment.
To use the Crypto Fear & Greed Index effectively, beginners should monitor it regularly to gauge the overall sentiment of the market. However, remember that sentiment analysis is just one aspect of making trading decisions.
Learn more about the Crypto Fear & Greed Index and how it’s measured.
How to Use Crypto Analytics Tools
The Bitcoin Rainbow Chart above indicated to HODL, while the Crypto RSI chart showed that BTC’s RSI was strong, an indication that now would be a good time to sell. Yet, the Altcoin Season Index (57%) said that it is not altcoin season yet. In other words, Bitcoin outperformed a large proportion of top altcoins, with still room for altcoin growth. Finally, the Crypto Fear & Greed Index showed that we have entered a phase of extreme greed in the crypto space, which also might be a good time to sell.
In summary, all of the indicators above give a macro image of what is happening in the market. While all indicators suggest that we are in a bull market right now, they vary on where they place the current market action in the bull run.
Other Factors to Gauge the Crypto Market
The finer details can be partly gleaned from technical analysis, macroeconomic, and social factors. While technical analysis is a complex discipline, many traders also look to the latter factors of what is happening in the social realm.
These can be signals like mass media not only reporting on Bitcoin, but also mid- and smaller-cap altcoins, as well as crypto apps like the Crypto.com App and DeFi Wallet ranking in the Top 10 in the App Store and Google Play Store. A high volume of crypto search terms on Google (here) are also signals, in addition to friends, family, and seemingly everyone asking for advice on buying crypto.
Macroeconomic signals that have shown to be correlated with movements in the crypto market include interest rates, the direction of the traditional finance (TradFi) stock market, and trust in the stability of the US dollar. Low interest rates have been correlated with more willingness to invest, and when the stock market is doing well, it often has a positive effect on crypto, as well. Finally, lowered trust in fiat has shown to sweep new users looking for an alternative into the crypto space.
Conclusion
Many seasoned crypto traders swear by technical analysis to make the best moves. However, learning to read crypto charts takes time. Luckily, there are other crypto indicators that are easy to understand for beginners — and still trusted by the pros. The Crypto Rainbow Chart, Crypto RSI, Altcoin Season Index, and Crypto Fear & Greed Index are four of the most popular tools to gauge where the crypto space is leaning.
While useful to give a macro indication of the market, do keep in mind that they are just an indication of what is predicted to happen, with no guarantees. Most successful traders rely on more than one indicator before making decisions, combining it all with macroeconomic and social signals like interest rates and Google Trends.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
