Cryptocurrency Market: Choice of Technical Indicators in Trading Strategies of Individual Investors

Abstract

Technical analysis is a popular tool for assessing financial assets. It has fairly well-established tools, namely indicators. In addition, modern financial market has expanded due to the new segment of cryptocurrency. The cryptocurrency market is both decentralized (by blockchain technology) and centralized (by cryptocurrency stock exchanges). It is highly heterogeneous as there is bitcoin, on the one hand, and numerous multifaceted altcoins and stablecoins, on the other. Its significant volatility allows one to use low leverage of margin trading, small lot amount, and low commissions. There is a boom in the growth of the number and volume of individual investments in modern financial market. At the same time, most of the research focuses on automated and algorithmic trading and is devoted to finding ways of using artificial intelligence to build trading strategies, which is suitable for professional traders only. The goal of the study was to substantiate the use of one of the well-known technical indicators for planning investment strategies by individual investors in the cryptocurrency market. The features of the cryptocurrency market have been identified for planning trading strategies to achieve the goal. False and reliable signals generated by the most popular oscillators in the cryptocurrency market, i.e. the MACD, Scochastic and RSI, were analyzed. The research was conducted using technical capabilities of the TradingView web platform. It was concluded that the MACD oscillator which is one of the most popular overbought / oversold indicators, does not work properly in the cryptocurrency market when it is necessary to determine historical lows or highs, since it is based on absolute price values. The Stochastic oscillator also does not work properly in this situation. The Stochastic gives false signals on short timeframes even though it is based on relative price values. The innovative nature of the results lies in the conclusion that the RSI oscillator is the most reliable for developing trading strategies based on historical highs and lows of oversold / overbought indicator. It 'absorbs' impulsivity by dividing absolute values of the averages of all positive candlesticks by the average of all negative candlesticks. Theoretical significance of the study lies in proving the hypothesis that the choice of technical indicators for creating trading strategies depends on the market segment. Its practical significance lies in finding a financial solution for an individual investor, namely, in justifying the procedure for individual investors to use a simple, understandable, technical indicator (RSI) available on all platforms in the cryptocurrency market.