Ethereum Technical Analysis Over The Past 9 Months
The ETH/BTC 1-day chart over the past 9 months proves the reliability of MACD used in conjunction with RVI. Here are the simple rules to follow to predict future price movements;
Moving Average Convergence Divergence (MACD)
MACD is a trend specific momentum indicator. The Binance default calculates the MACD line (green line) by subtracting a 12-day exponential moving average from a 24-day exponential moving average. The trigger-line (blue line) is a 9-day exponential moving average. Exponential moving averages are unique in that the current price carries more weight in the calculation than do older prices, therefore making the indicators quicker to respond. The red histogram is another interpretation showing the relationship between the two lines (the histogram is in the positive when the trigger-line is above the MACD line).
Interpretation:
- Buy when the trigger line crosses above the MACD line (histogram goes from negative to positive)
- Sell when the trigger line crosses below the MACD line (histogram goes from positive to negative)
- Overbought/oversold conditions are indicated when the trigger line is abnormally far away from the MACD
- Divergence- when price makes a new high but MACD fails to make new high and vice versa
Relative Volatility Index (RVI)
RVI is a confirming indicator used to determine the direction of volatility. Used in conjunction with MACD, many false indicators could be ruled out as shown in the Ethereum one day chart. RVI has the same calculation process as Relative Strength Index except it uses a 10-day standard deviation of high and low prices instead of a period to period price changes. This gives RVI the unique and unrelated characteristics of other momentum based indicators, making it superior for confirmations.
Interpretation:
- Buy signals confirmed when RVI > 50
- Sell signals confirmed when RVI < 50
- Missed buy signals should be executed if RVI rises above 60
- Missed sell signals should be executed if RVI falls below 40
- Long-term positions are best taken with low RVI
- Short-term positions are best taken with high RVI
Bollinger Bands
Bollinger Bands are made up of a moving average (middle line) and an upper and lower band which are the moving average offset by 2 standard deviations. There are many applicable strategies for the use of Bollinger bands but when used in addition to the above indicators, keep these signals in mind.
Interpretation:
- Price bounces between the upper and middle band confirm a bullish trend
- Price bounces between the lower and middle band confirm a bearish trend
- Sharp price movements usually occur following tight contraction of the bands
- Widening of the outer bands indicates a continuation of the current trend
Conclusion:
Use of these 3 tools will yield somewhat reliable buy and sell signals but not an independently reliable guide. Chart patterns still play a major role in price movement, for example, the descending triangle and double peak is shown on the Ethereum chart. It is immensely important to combine fundamental analysis with these techniques to develop a consistently reliable system. Happy Trading!