Two Technical Indicators to Gauge Market Trends in LBank Futures
The Bollinger Bands and exponential moving average (EMA) are valuable tools for traders seeking to gain insight into market trends. By smoothing out technical charts, these indicators can help create clear trend signals that provide greater clarity on market movements.
In the dynamic and volatile cryptocurrency futures market, there are numerous ways to leverage these indicators to anticipate trend reversals and make profitable trades. Equip with a range of features and analytical tools, LBank Futures is an excellent platform for traders seeking to gain a deeper understanding of cryptocurrencies’ price action and optimize their trading strategies.
Using Bollinger Bands
Developed by John Bollinger, Bollinger Bands are one of the most powerful trading tools available to traders and have been used for decades in both Stocks, Commodities, and Forex analysis. This article will describe how to trade with Bollinger Bands and use them to enhance your signals and make them more accurate and profitable.
Trends
The first method to use Bollinger Bands is to gauge trend\range. If the Bollinger middle band is flat, it means that the price is ranging and that the trend is weak, and if the middle band is trending in a certain direction, it means that the price is in a strong range. This indicator can help you filter trades: in ranging markets, it’s preferable to execute reversal trades, and in trending markets, you can explore different spots to join the trend.
Oversold and Overbought Conditions
Overbought can be interpreted as a buy in a saturated condition, while the oversold condition can be described as saturated selling. Understanding these conditions can signal a possible trend reversal.
Usually, when the price is in range, the upper and lower bands serve as resistance and support levels, respectively. Therefore traders enter a short trade if the price hits the upper band and reverses. Alternatively, traders enter a long trade if the price hits the lower band and reverses upwards. It is recommended to confirm these signals using an existing support\resistance level that is confirmed by price-action to make the signals more accurate.
Squeeze
A squeeze occurs when the volatility is low and the price is in a very tight range. Usually, this squeeze results in a very big breakout of the range and a beginning of a strong trend. Traders can take advantage of this by setting orders outside of the range, in so doing catching a good price at the beginning of the trend and subsequently harvesting the profits.
However, this trading method is not so reliable as, in many cases, the price breaks to one side just to subsequent reverse and then actually create a trend in the opposite direction.
The Exponential Moving Average
An EMA, or Exponential Moving Average, is a commonly used technical analysis tool in trading markets. It is a type of moving average that draws predominately from more recent data while still taking into account historical data. This means that it reacts more quickly to recent price changes than a Simple Moving Average (SMA). The EMA assigns decreasing importance to older data while assigning more significance to more current data.
In trading, a buy signal is generated when the price of the trading pair, for example, BTC/USDT, rises above the EMA, whilst a sell signal is generated when the price falls below the EMA. Professional traders often use moving averages of all kinds, but the EMA’s ability to respond more quickly to price changes can make it particularly valuable.
Interpreting EMA
An EMA is often used in combination with other EMAs, with three or five EMAs moving together. When the shorter-term EMAs cross above the medium and longer-term EMAs, it indicates a rising market and suggests a long position may be appropriate. Conversely, when the shorter-term EMAs cross below the medium and longer-term EMAs, it indicates a declining market and suggests a short position may be appropriate.
The Exponential Moving Average (EMA) is a versatile tool that can be applied to any timeframe. Smoothing out raw data helps to eliminate market “noise” and enables traders to identify trends with greater clarity.
Wrapping Up
LBank Futures provides a plethora of features and tools to maximize the profit potential in the cryptocurrency futures market. While each technical indicator mentioned can enhance your technical analysis and offer insights into price action, it’s crucial to avoid becoming overwhelmed and instead choose only the indicators that suit your needs.
Overcomplicating your strategy with too many indicators can lead to “paralysis by analysis” as traders process excessive amounts of data. It’s advisable to keep it simple and employ only a select few indicators that align with your trading plan’s objectives.
Disclaimer: Derivatives are often volatile, and this can be a risky investment. The information provided in this article is solely for educational purposes and shouldn’t be regarded as financial advice.
