Wouldn’t it be nice to feel confident in whether you should buy or sell crypto based on more than a whim? While there are no certainties when it comes to crypto investing, or any investing for that matter, you can still make more educated trading decisions by reviewing different types of market analyses.
In the crypto world, analyses that prompt you on when to buy or sell are called crypto signals or crypto trading signals. Sometimes these alerts are automated, coming from bots, and other times they are manual alerts from human analysts.
There are also many different types of crypto signals. Some are more actionable alerts that suggest specific trading prices, like the entry point and exit point you should buy and sell coins, as well as stop-loss and take-profit levels. Or, crypto signals might be more qualitative, like if you get tips in a Discord community about where others think a coin is heading.
While you should always do your due diligence and not assume that crypto signals are guaranteed to be accurate, you might find them to be helpful, especially if you’re a beginner or someone who’s too busy to do much initial research on your own. Crypto signals generally provide more information to traders and might help you avoid issues like getting greedy when a token moons, as seeing signals like a take-profit price point can help guide you on when to sell.
How Do Crypto Signals Work?
Crypto signals can be received in several different ways, and the signals themselves can be based on very different methodologies. Some of the broader categories of crypto signals and how they work include:
Technical Analysis-Based Signals
Like with stock investing, crypto investing can incorporate either fundamental or technical analysis, or a combination. Technical analysis is based on reviewing trading charts, such as looking at how a coin or token has traded in the past and forecasting price movements based on that, rather than the underlying fundamentals of the asset, like its real-world utility.
Technical analysis-based signals deliver alerts based on technical indicators, like suggesting an entry point if the asset has traditionally bounced off a given low.
Some common technical indicators include:
Relative Strength Index (RSI): The RSI measures price momentum on a scale of 0 to 100, with higher levels suggesting that an asset is potentially overbought, and vice versa for lower levels.Moving averages: There are many types of moving averages, but basically these average out asset prices over time, which can provide signals on where an asset might head next. For example, an asset might have dipped from a recent high but still be trading above its 200-day moving average, which some might interpret as a signal that the asset is still in a bullish phase.Fibonacci levels: Based on the famed Fibonacci sequence, these levels suggest where an asset might have support or resistance, such as if the price retraces by 23.6%, 38.2%, 50%, etc., following the Fibonacci sequence. This doesn’t necessarily mean that a coin or token will bounce right after falling exactly 23.6%, but this is a signal that some traders use to get a general idea of where there might be support.
Technical analysis can also be based on chart pattern recognition, which is somewhat more subjective but still relies on specific price movements. Some of these indicators include:
Head and shoulders: This pattern basically looks like there’s a head and shoulders on the chart, where there’s a small peak followed by a higher peak followed by another small peak below that high point. This can indicate that the asset price will fall further if it reaches the so-called neckline connecting the low points of the shoulders.Triangles: This pattern is formed from trendlines that resemble a triangle when connecting upward or downward price movements and resistance levels. Depending on the type of triangle, it can signal a breakout up or down.Support/resistance: Support levels are trendlines where an asset price typically bounces back up after falling, whereas resistance levels are where the price tends to get pushed back down after hitting that high mark. These levels can provide signals such as around entry and exit points.
Both bots and human analysts can conduct technical analysis, looking at indicators like these and drawing their own conclusions to then signal investors on how to respond. For example, a bot might send out signals whenever a coin crosses above its 50-day moving average, suggesting a potential breakout.
Fundamental Analysis-Based Signals
Technical analysis is often ripe for bot signals, as there’s a lot of math involved, even if the interpretation is up for debate. But fundamental analysis-based signals are often more qualitative and research-based. These can certainly still be automated and have a quantitative element, but there’s also often a lot of human-based signals in this area, based on how individuals interpret fundamentals like market demand and risk.
These signals might be delivered through a wide range of channels, such as social media and private communities, where individuals share their interpretations of how various developments will affect a coin or token’s price.
For example, fundamental analysis signals might be based on news stories, such as if regulatory changes will likely clear the way for expanded crypto usage, which could drive prices higher. Similarly, news-related fundamentals like partnerships between a coin and an exchange could also affect where the coin’s price might head, such as if that exchange will help drive demand.
Market sentiment can also play a role, such as if crypto users seem to be enthusiastic or not about particular coins or tokens. For example, if a major retailer starts accepting Bitcoin as a payment method and consumers seem to be excited to pay that way, it could support higher Bitcoin prices.
Keep in mind, though, that signals can be misleading. Enthusiasm or pessimism doesn’t always translate into higher or lower prices. For example, crypto investors might be excited about a new Bitcoin payment option, but that doesn’t mean there’s a large enough market of new users to justify higher asset prices.
Market sentiment is also often expressed as a number on a Fear and Greed Index. When sentiment is high, for instance, that trends toward greed that drives up prices. But it could also signal an impending downturn if negative events occur.
In general, fundamental analysis-based signals are often slower and more subjective than technical signals, but they arguably go deeper and provide more value to long-term investors because they aim to reflect the underlying price factors. Trading behavior might be pattern-based, as technical analysis tries to determine, but that doesn’t always tell you the full story, like if an asset dips in value due to a broader economic downturn. The underlying fundamentals of that asset might still point to long-term growth.
Algorithmic and AI-Powered Signals
While research can be manual, crypto investors increasingly rely on algorithms or AI tools to provide signals based on either technical or fundamental analysis, such as automatically providing buy signals if a coin crosses a moving average or issuing a sell signal if recent news suggests that a coin is falling out of favor.
Some investors set up their own algorithmic trading systems or create AI models to provide signals, but there are also plenty of third-party platforms that provide automated insights.
These signals are often faster and potentially more consistent than manual signals because they’re based on specific rules. However, there are also potential downsides to consider before relying on algorithmic or AI signals, such as the black-box nature of many of these systems, meaning you don’t know how they’re coming up with their conclusions. There’s also overfitting risk, where a machine learning model relies too much on its training data and can’t adapt sufficiently to new data, which could lead to poor signals.
How to Get Crypto Signals for Crypto Trading
There are many different places to get crypto signals, ranging from informal, free sources to more advanced and expensive ones. Some of the top ways to get crypto signals include:
Free Crypto Signal Sources
Free crypto signals can technically come from anywhere, but some common ways to get them include joining Telegram channels, Discord groups, or browsing Reddit threads where other crypto investors share their analyses.
A major benefit of these resources is that they’re widely accessible and free. However, there’s a lot of noise to wade through, and in some cases downright misinformation or scams. There’s also often a level of anonymity users of these platforms enjoy, which means you often can’t verify a tipper’s track record. The signals they suggest may sound reasonable on the surface, but you may have no idea whether they’re trustworthy.
At the very least, keep your guard up. Try to verify things like a poster’s methodologies and performance if possible, and consider using free signals as one part of your decision-making process, rather than as your sole determinant.
Paid Crypto Signal Providers
Paid crypto signals often come from professional, formalized platforms, such as Learn2Trade, CryptoSignals.org, or Fat Pig Signals.
These types of providers often charge subscription fees to access their signals, and offer features like real-time alerts and integrations with crypto trading platforms.
It may be easier to verify the past signal performance of a more established provider versus an anonymous trader on a message board, and they may publish deeper information like risk-reward ratios. Still, you need to do your due diligence. Just because you’re paying for the crypto signals doesn’t inherently mean they’re more likely to be accurate or legitimate.
Copy Trading and Signal Automation Platforms
Copy trading is what it sounds like. You’re copying someone else’s trades, such as a professional investor who publishes their picks. These trades could be a signal you weigh in deciding whether to buy or sell, or a blueprint you follow precisely. A signal automation platform can auto-execute trades in your account based on copy trades or other signals.
You can find copy trading features within some crypto trading platforms such as eToro, and you can use platforms like 3Commas to create an automated trading bot. Or you might be able to link a signal provider to your account at an external crypto platform to automate trades.
While this can be convenient and take some of the emotion out of trading, there’s a lot of risk. Blindly following other investors’ trades may lead to decisions you wouldn’t normally make, and automated trading bots might similarly act on information differently than you would prefer if you could take the time to analyze it.
Be sure you understand the risks before engaging with this type of investing tool. Instead of auto-executing, you might consider viewing copy trades and manually executing them.
Using Signal Apps and Tools
If you don’t want to fully automate your trades based on signals, you might instead opt for things like push notifications based on customizable alerts from various signal apps and tools. You can also set up features like watchlists to see how different cryptocurrency prices are moving, which you might track to see if certain signals seem to bear out.
Many signal providers and trading platforms offer apps, you just have to see what fits your preferences. For example, 3Commas and eToro both have mobile apps for Apple and Google Play, and like the web versions, allow for easy integration with exchanges and crypto wallets so you can act on signals.
Choosing the Best Crypto Signal Provider
Choosing the best crypto signal provider depends on your preferences and goals, such as whether you want to rely on a more automated process or carefully review a wide range of manual signals.
What to Look for in a Reliable Signal Service
While everyone has their own preferences, some general factors to consider when assessing the reliability of a signal provider include:
Track record and verified results: Being able to review a signal provider’s track record, with verified results, can help you gain confidence in the reliability of those signals. Like with almost any investment, however, past performance is not a guarantee of future results. But you might feel more comfortable choosing a provider with a strong track record versus an unproven one.Transparent methodology: Look for signal providers that have a transparent methodology to get a better sense of whether you want to rely on their information. Think about it like any other prediction — wouldn’t you want to know if a sports betting tips provider bases their picks on coin flips or statistical analysis?User reviews: Getting assurance from others can also help you feel more comfortable. Search for reviews on app stores or ask around to see what others think of a signal provider. Keep in mind, though, that it’s possible for a company to fake reviews, so be skeptical of providers with only glowing reviews.
Trial periods or free tiers: If you decide to opt for a paid signal provider, it can be hard to throw your hard-earned money at something you haven’t used before. Consider if a signal provider offers some free access, such as a trial period or Telegram channel preview, before signing up for an ongoing subscription.
Common Red Flags and Scams
Unfortunately, there are plenty of bad apples in the crypto signals world. Watch out for these red flags of untrustworthy providers:
Signals claiming “guaranteed profits” or extreme win rates: There’s no way to guarantee profits, and even strong signal providers are wrong sometimes. It’s a red flag if it overhypes its abilities.Lack of past performance data or verified results: Signal providers that lack performance data and aren’t open about their results could be ineffective or outright scams.High-pressure sales tactics: There’s no shortage of unscrupulous people trying to get you to part with your money. If they’re using high-pressure sales tactics, like touting urgency to join a Telegram/WhatsApp to get huge profits or else you’ll miss out, that’s a red flag.
Comparing Manual vs. Automated Crypto Signals
To decide whether you want to use manual or automated crypto signals, or a combination, consider the following:
Manual crypto signals are typically slower but might be better for nuanced, subjective decisions. For example, if you need to carefully analyze how regulatory developments will affect cryptocurrency prices, then you might want to receive manual signals and think about what to do next.
The downside is that you might miss out on acting on new information right away, and you might make more emotion-based trades when you do it yourself.
Automated crypto signals generally excel in terms of speed, scale, and consistency, but the downside is that you don’t get a human analysis of nuanced information, and the algorithm or AI model might have its own biases that you wouldn’t follow if you fully understood how it works.
Because there are pros and cons to both manual and automated crypto signals, the best approach may be a hybrid model.
Tips for Using Crypto Signals Effectively
While you may have your own way of using crypto signals, some general best practices include the following:
Combine Signals with Your Own Research
Signals are essentially data points, not the be-all and end-all. In many cases, you’re better off incorporating signals into your own research, rather than solely relying on them. You might use signals as confirmation of your own thesis and analysis, rather than following their every suggestion.
Set Risk Management Rules
One advantage of crypto signals is that they often suggest stop-loss and take-profit levels, which should generally always be part of your crypto investing risk management strategy. Still, don’t assume that what a crypto signal provider suggests for these levels fits your own risk tolerance. Cryptocurrencies can be volatile, and a good rule of thumb is to never invest more than you can afford to lose, which might mean adjusting stop-loss signals to meet your own financial needs.
Also, watch out for overtrading, where you’re constantly making moves based on multiple conflicting signals. If you’re too reactive and focused on the short term, it can be hard for any investment strategies to pan out.
Use a Demo Account First
Lastly, consider using a demo account or paper trading account first to test out signal performance without risking actual money. This can help you get comfortable incorporating signals into your investment strategy before putting real funds at stake.
Demo accounts are common on trading platforms, so consider trying different ones to get a sense of which platforms have a user experience that fits your needs. You should also research any fees and security practices of different platforms, ideally before even signing up for a demo account, but at the very least before you add real money.
Frequently Asked Questions (FAQ) About Crypto Signals
Are crypto signals worth it?
Crypto signals can provide helpful data points, but there’s a huge range in quality. If you can find a trustworthy signal provider with a strong track record and transparent methodology, using signals might be worth it. But a lot depends on your preferences, and there’s no telling whether a signal provider will continue to perform well in the future.
What is a crypto signal?
A crypto signal is an alert or suggestion related to when you should buy or sell specific cryptocurrencies. These signals often recommend entry and exit points, as well as stop-loss and take-profit levels.
Where can I get crypto signals?
You can find free or paid crypto signals within Telegram or Discord groups, as well as from other online tools and apps specializing in crypto signals. Search around to find different providers and conduct due diligence by reading app store reviews and comparing methodologies to find which signal providers might be a good fit for you.
Created by the Commerce team at Business Insider with Best Wallet.
