The world of finance has developed quite a bit since the inception of the stock market. As a result, institutional investors are always on the lookout for tools and techniques that’ll give them a good indication of price movements and market standing. The same holds true for Bitcoin. Like stocks and bonds, it too is a financial asset.

Institutional investors have a plethora of resources at their disposal to form the basis of Bitcoin technical analysis. They use what is known as performance indicators to evaluate price data and determine price movement. It gives them a distinct advantage of knowing when to sell or buy the hot cryptocurrency.

Let’s take a look into their industry and see what kind of performance indicators they make use of so that you don’t get left behind or miss out on the action.

What are Performance Indicators?

Simply put, performance indicators are mathematical algorithms that use data from previous price movements to output new price predictions. There are many different kinds, and each has different use cases depending on the trend an asset class exhibits. Keep in mind that they are not 100% accurate and rely on probabilistic models that have a degree of uncertainty included in them.

Moving Averages

This indicator is perhaps the most widely used out there used to identify purchase and selling trade strategies. As its name implies, it takes an average of the value of an asset to smoothen out the price curve. As you must know, Bitcoin’s volatile nature means that its price jumps up and down rapidly compared to other asset classes in the same time period. Smoothing out the curve shows a more distinguishable price pattern, in turn, cleaning data for better predictions. Visit crypto trader software to start investing in bitcoins without any hassle.

There are a few types of moving averages. The one you choose depends on the kind of trader you are. Additionally, the data you plug in depends on the duration of your trades.

Relative Strength Index (RSI)

When an asset becomes overvalued, you can be sure that a subsequent selling period will follow. The opposite is true when it is undervalued. Won’t it be great if a performance indicator predicted just that? That’s exactly what the RSI index is for. It uses a mathematical formula to determine the true value of an asset. Having this information is essential for trading Bitcoin as it allows you to judge market standing before it goes in a direction to remedy itself.

The RSI outputs a value between 0 and 100. An asset is considered stable if its value is between 30 and 70; above 70, it’s considered overvalued, and below 30, undervalued.

Bollinger Bands

The popular trend in Bitcoin is how it has large price movements between resistance bands. Just last month, its price dipped to around $50,000 and then came back up to approximately $60,000. A good trader knows that you can take advantage of these price swings to make some money. That’s where Bollinger bands come in.

They use historical data to output an average price value based on market volatility. In addition to this, it also displays an upper and lower band showing the likely price spread.

When the spread is high, and you have an indication of when an asset is overvalued, you can start liquidating it. Once the price goes down, you can buy it back at the lower band it’s expected to reach. The price will then go up again to its average value or even its upper band. The difference in price is your profit.

A Word of Advice

Though there are many performance indicators, the ones mentioned in this article are perhaps the most essential when it comes to Bitcoin trading. But, you must take caution when investing; try using apps that will help you familiarize how these tools work and what kind of dataset you need to feed into them.