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Technical indicators have been helping traders and investors to analyze the past and predict future price trends and patterns. They are popular among traditional financial market participants. Crypto traders have been taking advantage of all these conventional tools to make better trade decisions. Previously, we’ve reviewed some of the key technical indicators and highlighted the usage of the Sharpe ratio. This time we will go through some of the indicators that are tailored for cryptocurrency trading.
First introduced by renowned crypto analyst Willy Woo in 2017 and later modified by tech expert Dmitry Kalichkin in 2018, NVT Signal analyzes the crypto price performance using blockchain data. The calculation of NVT Signal is the network value divided by the 90-day moving average of the daily transaction value. NVT Signal is widely considered as an effective indicator that’s tailored for crypto trading.
The rationale behind NVT Signal was borrowed from the P/E ratio. In the equities markets, analysts can examine a company’s value by using the price-to-earnings ratio.
Since Bitcoin is essentially a payment and store of the value network, the capital flows of the network could be, in a sense, a representation of “company earnings”.
Figure 1: BTCUSD with NVT Signal
In the case of Bitcoin, when the NVT Signal is above 150, it’s considered overbought. When the NVT Signal is below 45, it indicates oversold.
Figure 1 shows the daily BTCUSD performance since April 2017. In Jul 2017 and Feb 2018, the NVT Signal caught the market bottom and touched the 45 levels (yellow circles) that were followed by a significant price rebound.
On the other hand,