Trading in the volatile world of cryptocurrency necessitates a structured approach and well-planned strategy. Since cryptocurrencies typically have a low correlation to economic fundamental data and other markets, technical analysis and crypto-specific news remain the main drivers for analyzing cryptos.
Most analysts would agree that there is no “perfect” trading strategy. However, there are many methods that are well suited to those interested in trading cryptocurrencies. You simply need to pick out the strategy best suited for the market direction and your trading style.
Today we will be covering crypto trading strategy based on the combination of the Commodity Channel Indicator (CCI) indicator and Stochastic relative strength index (StochRSI) indicator.
Understanding the CCI Indicator
The Commodity Channel Index (CCI) measures the current price level relative to an average price level over a given period of time. This means that CCI is high when the prices are far above their average and CCI is low when the prices are below their average.
CCI Indicator – Components
When the CCI is above +100, it usually signals that a new, strong uptrend is beginning, and is considered a buy. Conversely, when the CCI moves below −100, it usually signals that a new, strong downtrend is beginning, and is considered a sell.
CCI is an unbound oscillator, which means that there are no upside or downside limits. This makes interpreting an overbought or oversold condition subjective. Typically, a CCI reading above +100 indicates that crypto has been overbought, while a reading below -100 usually indicates that crypto has been oversold.
Traders usually take short positions on the crypto when the CCI starts to move down from overbought conditions (when the indicator crosses the +100 back to the downside). Conversely, they will look to buy the crypto when the CCI starts to move higher from oversold conditions (when the indicator crosses the -100 back to the upside).
Understanding StochRSI indicator
The Stochastics RSI indicator provides a stochastic calculation of the RSI (Relative Strength Index), a momentum-based indicator.
The StochRSI deduces its values from RSI readings. The RSI’s value input is 14, which provides the number of data periods included in the calculation. The RSI values are, in turn, incorporated in the StochRSI formula.
The Stochastic RSI ranges between 0 and 100. The two lines of the indicator are labeled %K (blue color) and %D (orange color).
StochRSI Indicator – Components
Stochastic RSI allows traders to identify whether crypto is in the overbought (80) or oversold (20) territory. When the Stochastics RSI is consistently above 50, it reflects an uptrend in prices and when the Stochastics RSI oscillator is consistently below 50, it reflects a downtrend in prices.
Crypto trading strategy based on CCI and StochRSI
Today’s crypto trading strategy focuses on using the StochRSI indicator in conjunction with the CCI indicator for accurate entry and exit.
Buying Rules
The buy signal is generated whenever the CCI indicator is above 100 and the %K line of the StochRSI is above the %D line. Traders typically close their existing buying positions if the CCI level starts to move below -50.
BTCUSD – Buy Criteria Using CCI and StochRSI
As you can see from the chart of BTCUSD, the crypto started moving higher once the buy criteria were fulfilled.
Selling Rules
A sell signal is generated whenever the CCI indicator is below -100 and the %K line of the StochRSI is below the %D line. Traders typically close their existing buying positions if the CCI level starts to move above +50.
ETHUSD – Sell Criteria Using CCI and StochRSI
As you can see from the chart of ETHUSD, the crypto started moving lower once the sell criteria were fulfilled.
As you can see, using the StochRSI indicator in conjunction with the CCI indicator can help you trade cryptos better. Using the two indicators in tandem can help avoid false signals and create profitable trading.
Happy trading!
Trades of the Day Research Team