In today's digital age, cryptocurrencies have emerged as a popular trading option, enticing experienced traders and newcomers. However, diving into cryptocurrency trading without a proper understanding can be daunting and risky.

Whether you want to find out how to start with cryptocurrency or are looking to enhance your trading skills, learning the right tools is essential. In this FXOpen article, we explore the best trading tools that'll help you navigate the complex world of cryptocurrency trading.

Unique Features of Crypto Trading

Crypto trading has several unique features that distinguish it from traditional financial markets. The key ones include:

Decentralisation

Cryptocurrencies operate on decentralised platforms called blockchains, which means they are not controlled by any central authority such as a government or financial institution. This enables users to exert more control over their capital and do away with the need for intermediaries.

Volatility

Cryptocurrencies are known for their high price volatility. Prices can experience significant fluctuations in short periods, creating opportunities for traders to profit from price movements. However, it also increases the risk of losses.

24/7 Market

Unlike traditional financial markets with fixed trading hours, the crypto market operates 24/7. This allows traders from different time zones to participate at any time, providing more flexibility for trading.

Numerous Trading Options

Crypto trading offers various options, including spot, futures, and CFD trading. Each option has advantages and risks, allowing traders to choose the approach that suits their preferences and trading goals.

It's important to note that while the unique features of crypto trading present profit opportunities, they also come with inherent risks. Traders should educate themselves, stay updated with market news, and implement proper analysis tools to navigate the crypto market effectively.

Best Tools for Crypto Trading

Although more than a dozen tools are readily available to traders, few stand out with unique applications for crypto trading activities. Some of the best trading tools for cryptocurrency traders include:

Ichimoku Cloud

The Ichimoku Cloud is a versatile technical analysis tool that helps traders identify trends and potential reversal points and determine support and resistance levels. Cryptocurrency traders often use it to make trading decisions but change settings to make the indicator more appropriate for the high volatility nature of the crypto market.

The revised Ichimoku Cloud settings for cryptocurrency trading are:

• Conversion Line: 20 instead of 9
• Base Line: 60 instead of 26
• Leading Span B: 120 instead of 52
• Displacements: 30 instead of 26

RSI

The Relative Strength Index (RSI) is a popular momentum oscillator that measures the speed and change of price movements. Crypto traders can utilise it as a viable tool to identify overbought and oversold conditions and price divergences.

Cryptocurrency markets are characterised by sentiment-driven dynamics, contrasting with more traditional markets such as forex or commodities, which are typically influenced by fundamental factors. This stark contrast in market behaviour is a significant contributor to the notable volatility observed in cryptocurrencies. As a result of this sentiment-led dynamic, RSI could give more inaccurate signals, causing traders to believe the market is oversold or overbought when, in reality, it's just the start of a bullish or bearish push.

Therefore, traders may need to adjust the indicator to find the best RSI settings for crypto, increasing the period. Also, there may be a need to change the readings of the RSI for crypto to 80 and 20 instead of 70 and 30.

Supertrend

The Supertrend is commonly used by crypto traders to identify trend directions and potential entry and exit points. It is based on two key components: the Average True Range (ATR) and a multiplier value. Crypto traders prefer to keep the ATR value between 10 and 20; this provides a good mix of sensitivity to recent price action and smoothing. As for the multiplier, the standard factor of 3 is suitable; however, it can be lowered to 2 for intraday trading and increased to 5 for swing trading.

Fibonacci Retracements

Fibonacci retracements are a technical analysis tool used to spot potential support and resistance levels in financial markets. The levels are very customisable as they don’t have specific settings but are drawn in accordance with the current market trend. Crypto traders and analysts use them to determine where an asset's price might retrace or reverse during a trend and set stop-loss and take-profit levels. The levels commonly used in crypto technical analysis are 38.2%, 50%, and 61.8%.

VWAP

The Volume Weighted Average Price (VWAP) is a tool traders use to determine the average price at which a cryptocurrency was traded during a given period, weighted by the volume traded at each price level. There are four ways crypto traders can utilise the VWAP:

• Assessing the fair value of an asset
• Determining market sentiment and trends
• Spotting support and resistance levels
• Evaluating entry quality.
  

The Volume Weighted Average Price is a widely used indicator, especially in intraday trading, and it doesn't require specific settings or signals to be configured like some other technical indicators.

MACD

The Moving Average Convergence Divergence (MACD) indicator is used by crypto traders to identify trends and assess the momentum of an asset's price. It is based on exponential moving averages (EMAs), which put higher weight on the most recent prices, making the indicator suitable for the highly volatile crypto market.

Crypto traders prefer standard MACD settings:

• Fast EMA with 12 Period
• Slow EMA with 26 Period
• Signal Line with 9 Period
  

You can test the above-mentioned indicators at FXOpen’s TickTrader trading platform.

Conclusion

Learning about cryptocurrency trading is not enough; practising how to use the best tool to executive your knowledge is vital. By understanding how to use these tools, you can start to make informed decisions as a trader and potentially increase your profitability in the volatile world of cryptocurrency trading.

If you're interested in trading cryptocurrencies, consider opening an FXOpen account, which affords you a secure and reliable trading environment, competitive spreads, and a wide range of trading instruments.

At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.