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 relative strength index (RSI) indicator and the Chaikin Oscillator.
Understanding the Chaikin Oscillator
The Chaikin Oscillator is an indicator of an indicator and is used to identify underlying momentum during fluctuations in accumulation-distribution. The Chaikin Oscillator is basically the Moving Average Convergence Divergence (MACD) applied to the Accumulation Distribution Line indicator.
This means that whenever the Chaikin Oscillator moves into positive territory, it indicates that the Accumulation Distribution Line is rising and buying pressure prevails. In a similar way, when the Chaikin Oscillator moves into negative territory, it indicates that the Accumulation Distribution Line is falling and selling pressure prevails.
Centerline crossover at the zero line in Chaikin Oscillator usually indicates an upcoming trend reversal. There are two types of crosses
Bearish Cross: Whenever the crossover happens from above the zero line to below the zero line, it is called a bearish cross. Prices typically start to fall after that.
Bullish Cross: Whenever the crossover happens from below the zero line to above the zero line, it is termed as a bullish cross. Prices start to increase after that.
BTCUSD – Chaikin Oscillator – Zero Line, Bullish and Bearish Crosses
Understanding RSI indicator
RSI is short for Relative Strength Index. RSI is a momentum indicator that measures the speed and change of price movements and can be used to identify trend reversal.
The RSI is calculated using average price gains and losses over a given period of time. The default look-back period for RSI is 14.
RSI value oscillates between 0 and 100. When the RSI value is above 70, it is considered as overbought, and when RSI is below 30, it is considered as oversold. Some traders prefer to use 75/25 or even 80/20 to define overbought and oversold levels.
ETHUSD – RSI Oversold and Overbought Levels
Crypto trading strategy based on Chaikin Oscillator and RSI
Today’s crypto trading strategy focuses on using the RSI indicator in conjunction with the Chaikin Oscillator for accurate entry and exit.
Buying Rules
The buy signal is generated whenever the Chaikin Oscillator is above the zero-line, and the RSI is moving higher from oversold levels. It may be noted that some traders prefer to wait for confirmation of an upward trend by waiting for the RSI to cross over 30 before opening a long position.
Traders tend to exit the trade once the Chaikin Oscillator crosses below the zero-line and the RSI is also below 40.
BTCUSD – Buy Criteria Using RSI and Chaikin Oscuillator
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 Chaikin Oscillator is below the zero-line, and the RSI is moving lower from overbought levels. It may be noted that some traders prefer to wait for confirmation of a downward trend by waiting for the RSI to cross below 70 before opening a short position.
Traders tend to exit the trade once the Chaikin Oscillator crosses above the zero-line and the RSI is also above 60.
ETHUSD – Sell Criteria
Using RSI and Chaikin Oscillator
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 Chaikin Oscillator in conjunction with the RSI 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