Which technical analysis to choose? A guide to the 5 most effective indicators

Main findings

• Technical analysis tools include especially oscillators and moving averages, which help traders better understand price behavior.
• Each indicator examines a different aspect of the market – dynamics, trend, volatility, or overbought and oversold conditions.
• Combining several tools provides better accuracy than relying on a single indicator.
• Subjective interpretation of data always remains the main risk.

Why do traders need technical indicators?

Graphic tools are not just for analysts – they are practical assistants for recognizing trends and entry signals. In the dynamic cryptocurrency market, it is about the ability to quickly understand how the price behaves and what power buyers and sellers have.

Among the tools of technical analysis are both universal solutions used by all traders and special tools created by individuals. However, the most popular ones are always the same – and for good reason.

1. Relative Strength of the Market – RSI Index

The RSI will tell you whether the asset is currently overbought ( or oversold ). It works with the last 14 price movements and displays the result as a number from 0 to 100.

Simple logic: When the RSI crosses 70, the market has already “survived” buying. When it drops below 30, selling has also gone too far. At these moments, reversals often occur.

But beware - it is not an automatic signal. The market can be “overbought” and the price can still rise. RSI works best in combination with other tools.

2. Moving Averages – The Oldest and Simplest Way

The moving average smooths out price noise and shows where the market is actually moving. If the price holds the 200-day average, the trend has strength. When it moves away from it, the trend weakens.

Two types:

• SMA – simple moving average, all days have the same weight
• EMA – gives more weight to recent days, reacts faster

Traders watch the crossing of two averages – when the 50-day SMA crosses below the 200-day, it often signifies the beginning of a decline.

3. MACD – Energy Behind Prices

MACD measures the momentum behind price movements. It uses two exponential averages (12 and 26 periods ) and a signal line (9 periods ).

When the MACD crosses above the signal line = strong bullish signal. Crosses below = a fall is approaching.

The divergence between MACD and price reveals hidden weakness – the price is rising, but MACD is falling, indicating that buyers no longer have such strength.

4. Stochastic RSI – RSI on Friday

If the RSI is the “standard energy meter”, then the Stochastic RSI is its more sensitive cousin. It takes values from the RSI and performs mathematics on them to reveal even sharper signals.

Value above 0.8 = overbought. Value below 0.2 = oversold.

Disadvantage? It generates more false signals than the classic RSI. Therefore, use it more for confirmation, not as a standalone basis for decisions.

5. Bollinger Bands – Volatility Map

Three lines – center (sliding average) and upper/lower band (standard deviation from the center). The more volatile the market, the wider the band.

Price near the upper range = overbought. Near the lower = oversold.

Important phenomenon: Contraction – when the bands move little, a volatility explosion is imminent. Conversely, when the bands are spread out, volatility tends to subside.

What to Remember

Among the tools of technical analysis are dozens of variants, but these five are among the most reliable. However, none of them is perfect – all send false signals.

The best strategy? Don't just combine indicators, but also add fundamental analysis. Test them on historical data. And above all, remember that what looks like a clear signal to you may just be noise to someone else.

You will learn technical analysis best through practice. The more you observe, the better you will understand how the individual tools interact with each other.