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Trading Strategies with Data

The Simple Moving Average (SMA) is the most fundamental yet powerful technical analysis tool. It calculates the average closing price over a specific period, making it highly effective for identifying overall price trends.

The core SMA strategy is the Golden Cross and Death Cross. When the short-term MA (e.g., 10-day) crosses above the long-term MA (e.g., 30-day), it forms a Golden Cross (buy signal); when it crosses below, it forms a Death Cross (sell signal). In the Bitcoin market, this strategy has shown high reliability in capturing medium to long-term trend reversals.

Note that SMA is a lagging indicator. Since it's calculated from past data, it responds slowly to sharp price movements. In ranging markets, frequent whipsaws can occur, so it's recommended to use alongside other indicators.

The Exponential Moving Average (EMA) improves on SMA by giving greater weight to recent prices. This makes it respond faster to price changes, making it particularly useful for short-term trading.

For volatile assets like Bitcoin, EMA can detect trend changes more sensitively. The 12-day and 26-day EMA crossover is widely used — when the 12-day EMA crosses above the 26-day EMA, it's a bullish signal; when it crosses below, it's bearish.

EMA's weighting method better reflects current market conditions, but this also makes it more sensitive to false signals. Therefore, combining it with volume or momentum indicators to improve signal reliability is important.

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder that expresses the relative strength of upward and downward price movements on a 0–100 scale. It's one of the most widely used technical indicators in the Bitcoin market.

Generally, an RSI above 70 indicates overbought conditions where price correction is expected, and below 30 indicates oversold conditions where a bounce is expected. However, during strong uptrends, RSI can remain above 70 for extended periods, so relying on levels alone is risky.

An advanced RSI technique is Divergence. When price makes a new high but RSI makes a lower high, it's a bearish divergence suggesting trend reversal. This pattern has been frequently observed at Bitcoin bull market peaks.

MACD, developed by Gerald Appel, is a trend-following momentum indicator that shows the relationship between two EMAs. It consists of the MACD line (12-day EMA − 26-day EMA), signal line (9-day EMA of MACD), and histogram (MACD − Signal).

The basic MACD trading strategy is the MACD/Signal line crossover. When MACD crosses above the signal line, it's a buy signal; when it crosses below, it's a sell signal. The histogram's color and size changes help visually gauge momentum strength.

In Bitcoin trading, the zero-line crossover is also important. When MACD crosses above zero, it indicates a bullish shift; below zero, a bearish shift. This signal occurs later than the crossover but is more reliable.

Bollinger Bands, developed by John Bollinger, is a volatility-based indicator consisting of a 20-day moving average center line with upper (+2 standard deviations) and lower (-2 standard deviations) bands. It's based on the statistical principle that over 95% of prices stay within these bands.

The core strategy is band touch reversal. When price touches the lower band, it suggests oversold conditions and a bounce is expected; when it touches the upper band, overbought conditions and a pullback. However, in strong trends, 'Band Walking' can occur where price rides along the band.

Another technique is the Squeeze pattern. When band width narrows, it indicates decreasing volatility, and a big price move is expected to follow. In the Bitcoin market, post-squeeze breakouts often signal the start of powerful trends.

The Stochastic Oscillator, developed by George Lane, is a momentum indicator that shows the current closing price's position within a given price range as a percentage. It consists of two lines: %K (fast line) and %D (slow line, a moving average of %K).

Stochastic interpretation is similar to RSI. Above 80 is overbought, below 20 is oversold. The key signal is the %K/%D crossover: when %K crosses above %D in the oversold zone, it's a strong buy signal; when it crosses below in the overbought zone, it's a sell signal.

Stochastic is especially effective in ranging markets. Reversal signals in overbought/oversold zones show high accuracy when prices oscillate within a range. In strong trends, however, false signals are common, so combining with trend indicators is recommended.

ADX, developed by J. Welles Wilder, measures trend strength (not direction) on a 0–100 scale. Combined with +DI (positive directional indicator) and -DI (negative directional indicator), it reveals both trend direction and strength.

An ADX above 25 indicates a strong trend is present; below 20 suggests a weak or ranging market. Rising ADX means the trend is strengthening; falling ADX means it's weakening.

The ADX trading strategy uses +DI/−DI crossovers. When ADX is above 25 and +DI crosses above −DI, an uptrend begins; when −DI crosses above +DI, a downtrend begins. This signal is frequently observed at major Bitcoin trend reversals.

CCI, developed by Donald Lambert, measures how far the current price has deviated from its statistical average. Originally created for commodity market cycles, it's now widely applied to all financial assets including Bitcoin.

CCI's baseline is 0, with readings above +100 considered overbought and below −100 considered oversold. When CCI rises from −100 and breaks above −100, it's a buy signal; when it falls from +100 and breaks below +100, it's a sell signal.

CCI's advantage is its ability to detect trend changes quickly. It reacts more sensitively than RSI or Stochastic, allowing early trend entry, but this also generates more false signals. Therefore, confirmation from other indicators is important.

Williams %R, developed by Larry Williams, is a momentum indicator mathematically similar to Stochastic %K but uses an inverted scale (−100 to 0). It measures the current closing price's position relative to the highest price over a given period to assess overbought/oversold conditions.

Williams %R above −20 indicates overbought, below −80 indicates oversold. A buy signal occurs when it breaks above −80 from the oversold zone; a sell signal when it breaks below −20 from the overbought zone.

Williams %R is a fast indicator that can catch price reversals early. It's particularly useful for swing trading during Bitcoin's sharp price swings. However, it generates significant noise, so combining it with trend indicators or volume analysis is recommended.

ATR, developed by J. Welles Wilder, is a volatility measurement indicator. It's calculated as the moving average of the True Range (the greatest of: high−low, |high−previous close|, |low−previous close|) and represents the absolute price volatility.

ATR itself doesn't provide trading signals, but it's extremely useful for setting stop-losses and profit targets. For example, placing a stop-loss at 2×ATR from your entry price helps avoid being stopped out by normal volatility.

In Bitcoin trading, ATR is also used for position sizing. When ATR is high (high volatility), reduce position size; when low, increase it to maintain consistent risk. ATR breakout strategies can also be used to identify trend starting points.

OBV, developed by Joseph Granville, is a volume-based momentum indicator. It adds volume on up days and subtracts volume on down days in a cumulative fashion, based on the idea that volume leads price movement.

The core concept is "volume precedes price". If price is flat but OBV is rising, accumulation is underway and a price increase is expected. Conversely, if price holds but OBV falls, distribution is in progress and a price decline is likely.

In the Bitcoin market, OBV is useful for catching major trend shifts. OBV/EMA crossovers can serve as trading signals. It's an indicator that indirectly reveals institutional accumulation/distribution activity.

Parabolic SAR (Stop and Reverse), developed by J. Welles Wilder, is a trend-following and stop-loss indicator. It appears as dots above or below the price on charts, simultaneously showing trend direction and potential reversal points.

When SAR dots are below the price, it indicates an uptrend; above the price, a downtrend. When price touches the SAR, it's a reversal signal — close the position and enter in the opposite direction. As the name implies, it specializes in 'Stop and Reverse' strategies.

Parabolic SAR is highly effective in strong trends. During Bitcoin's powerful rallies or sharp declines, it follows the trend to maximize profits and exits quickly on reversals. In ranging markets, frequent whipsaws occur, so combining with ADX to confirm trend strength is advisable.

MFI combines RSI with volume and is often called a 'volume-weighted RSI.' It measures the intensity of money flowing in and out on a 0–100 scale, considering both price movement and volume.

Like RSI, MFI above 80 is overbought and below 20 is oversold. However, because it incorporates volume, it provides more reliable overbought/oversold signals than RSI. It reacts more sensitively to price movements accompanied by high volume.

A powerful MFI technique is price divergence. When price makes new highs but MFI is declining, it means upward momentum is weakening. In the Bitcoin market, MFI divergence has served as an important trend reversal signal.