Technical Analysis 101 (Part 2): Volume, MACD, & RSI


Hey guys, I’m Angelo & welcome back to Crypto
Coin Consultants. This will be part 2 of my technical analysis
series, and as usual I’ll be covering the theory behind each concept followed by on-screen
demonstrations to put what we’ve just learned into practice. Once again, this is a reminder that I’m
covering the bare basics. For more detailed information & advanced TA
strategies, consult sites like investopedia.com. Let’s get started! The first indicator I’d like to discuss
today–and one of the most important indicators you’ll use–is volume; which you’ll see
at the bottom of your screen as vertical red & green bars; red representing a downwards
movement in price & green representing an upwards movement in price. Traders use the volume indicator to determine
the strength of a particular coin’s price move. Large spikes in volume tell us there’s enough
market strength to keep driving price in that particular direction, while low volume may
be indicative of a trend reversal due to a thin order book. Of course, the volume indicator alone isn’t
enough to determine accurate entry or exit points. But combined with other indicators, it can
increase your likelihood of making the right decisions at the right times; meaning more
profits in the long run. Let’s take a look at some charts. Looking at Bitcoin’s 1-day chart, we can
see a massive green spike in volume on February 6th, 2018. This green spike tells us that we can likely
expect an upwards trend in price in the near future, which we saw was confirmed over the
course of the following two weeks. But let’s take a look at an instance where
there’s was a large green candle but with low volume. One such instance was on December 16th, 2017
when Bitcoin opened at $17,477 and closed at $19,187. Despite a close to 10% increase in price,
there wasn’t enough buying volume to continue driving the price’s upward movement. As I said earlier this may have been due to
a thin order book, meaning there weren’t a lot of people willing to sell their Bitcoin
to meet buyers’ demands. Thus, we saw a trend reversal over the course
of the next few days with a massive price drop of over 40% from its peak in less than
a week. The next indicator I’ll be covering is the
MACD, which stands for moving average convergence divergence. Again, I won’t be going over the finer details
like how MACD is calculated, so if you’re interested in that, visit investopedia.com. Instead I’ll be teaching you how to interpret
this popular indicator. The MACD is comprised of three different components. The first is the MACD itself, which is usually
represented by the blue line. The second component is the signal line, represented
in red. Lastly, we have the histogram, which plots
the gap difference between the MACD & the signal line; think of it as a sort of indicator
of an indicator. When the MACD crosses above the signal line,
the histogram appears turnt upwards; and if the MACD crosses below the signal line, it
turns downwards. Knowing this, an upwards-facing histogram
(or when the MACD crosses above the signal line) is generally a bullish signal & may
be a good time to buy. On the flipside, when MACD crosses below the
signal line (and the histogram is facing downwards), we have a bearish signal & it may be time
to sell to avoid further losses. We can also use the histogram itself to determine
good entry & exit points based on the gap difference, which I’ll explain in further
detail using a chart. Looking at Ether’s 1-day chart, we see the
MACD crossing above the signal line (and the histogram turning upwards) on January 2nd,
2018; thus providing us with a bullish indicator, which we can see with price’s upward movement
over the course of the following 11 days. The MACD then crossed below the signal line
(and the histogram flipped downwards) on January 16th, 2018; thus providing us with a bearish
indicator, which we can see in the overall downtrend over the course of the next several
weeks. Now as I mentioned earlier, let’s use the
histogram to determine a good time to buy & sell. Since we wanna buy when price is low, we’ll
wanna enter after a bearish signal and when the histogram is beginning to shrink. A shrinking histogram warns us of a possible
trend reversal. So by entering during this time period here,
we’ll be setting ourselves up to purchase Ether right when price is going back up. We can do the opposite when selling as well. By selling after a bullish indicator & when
the histogram is shrinking on the upside, we can feel confident knowing that we’re
exiting our position during a time when price is likely to keep moving down further; thereby
locking in some profits & possibly giving ourselves another opportunity to enter when
Ether is cheaper. The last indicator I’d like to go over today
is called RSI or relative strength index. RSI compares the magnitude of recent gains
& losses over a specific time period, and is used to determine whether or not a coin
is overbought or oversold. According to investopdia.com, the relative
strength index gives us a “relative evaluation of the strength of a security’s recent price
performance.” Simply put: a coin that’s overbought means
that its price is overvalued relative to its recent price, and that you may see a corrective
pullback in price. Oversold means it’s undervalued in price,
and that a correction to the upside may be due. As a general rule of thumb, sell when a coin
is overbought & buy when it’s oversold. RSI is plotted as an oscillator, whose values
range from 0 to 100. Generally, when RSI reads below 30, the coin
is considered oversold, and when it’s above 70, it’s overbought. Keep in mind that both RSI and MACD can be
subject to fakeouts, meaning false buy or sell signals may occur. That’s why it’s extremely important to
use these indicators in conjunction with other indicators in order to give yourself a better
read on the situation. Now let’s get back to the charts. Looking at Bitcoin’s 1-day chart back in
mid-December 2017, we see that RSI was well above 70 while Bitcoin was at its peak. This tells us that Bitcoin was overbought
(or overvalued) at these prices, and that a correction was likely due. This can be interpreted as a good time to
sell. On the flipside, RSI read below 30 on February
5th, 2018; indicating that at these prices, Bitcoin was oversold (or overvalued), and
that it was a good time to buy. Now let’s combine all that we’ve learned
today. First of all, volume showed a huge green spike
during this time, meaning there’s likely enough market strength to keep driving the
price upwards. Secondly, the histogram on the MACD is shrinking,
signaling a possible reversal of the downtrend AND a good entry point; that coupled with
the MACD line crossing the signal line a few days later acts as a bullish indicator and
also acts as added confirmation. Lastly, the RSI read below 30 as we just saw,
indicating that Bitcoin was oversold. Putting all these together, we have three
strong indicators telling us that early February 2018 was definitely a good time to buy. Now keep in mind that you can use the opposite
of these conditions as confirmation of a good time to sell too. That’s all for today guys & thanks for watching
part 2 of my technical analysis series. I definitely have more to come in this series,
so stay tuned for additional TA tips. As always, if you have any questions or requests,
feel free to leave them in the comments section below. And also, be sure to subscribe, hit the bell
button to get notified of new releases, and give this video a thumbs up! Thanks again for watching.

3 thoughts on “Technical Analysis 101 (Part 2): Volume, MACD, & RSI”

  1. Great stuff! You truly are empowering people with your videos. Thanks Angelo. Keep it going and you will get more subscribers.

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