If you trade cryptocurrencies, here are two very simple indicators that will help you decide in which direction you should be trading, rather than having you monitor the chart every minute.
Open Price Indicator: Current price – Open price
The Open Price Indicator (OPI) is a simple calculation that lets you know whether buyers or sellers have been stronger during the day.
If the current price is above the open price (positive OPI), this simply means that buyers have the advantage.
If the current price is below the open price (negative OPI), this means that sellers have the advantage and are in control
Ideally, you should trade in the same direction as the Open Price Indicator; if the OPI is positive, only taking long positions when your entry signals occur is the logical thing to do. If the OPI is negative, only take short signals when they appear.
The OPI acts as a filter. It lets you know in which direction you should be taking trades.
When the OPI flips from positive to negative or negative to positive, it can act as a trade signal. Buy when the OPI goes from negative to positive; sell (buy puts) when the OPI goes from positive to negative. Finding the exit will be up to you and based on price action or whichever indicator you use.
Net Price Indicator: Current price – Prior Close price
The Net Price Indicator (NPI) shows whether buyers or sellers are in control from one day to the next. The last closing price was the consensus price for traders yesterday. If the current price is above the prior close (positive NPI), this shows that buyers are in control. If the current price is below the prior close (negative NPI), it shows sellers have stepped it up and are gaining dominance.
Ideally, trade in the direction of the NPI; if NPI is positive only look for long positions; if the NPI is negative, only look for short positions.
When the NPI flips from positive to negative or negative to positive, it can act as a trade signal. Buy when the NPI goes from negative to positive; sell (buy puts) when the NPI goes from positive to negative. Finding the exit will be up to you.
The greatest confirmation comes when you are taking day trades in the direction of both OPI and NPI. When OPI and NPI are positive, it shows that the buyers are strong and pushing the price up since the prior close and since today’s open. When both these indicators are positive, your primary focus should be on finding long positions based on an established strategy.
When both the indicators are negative, your primary focus should be on finding short (put) positions based on an established strategy.
Except for when the indicators flip from positive to negative, or vice versa, these indicators are not trading signals. They only tell you in which direction you should be trading or considering taking a trade.
When using the indicators for trade signals, look for confirmation. If the one indicator moves from positive to negative, indicating a sell, the signal is stronger if the other indicator is already negative or also crossing into negative territory. When an indicator crosses from negative to positive, indicating a buy, the signal is stronger if the other indicator is already positive or also crossing into positive territory.
The Final Word
NPI and OPI give you a quick assessment of how the price is performing compared to yesterday’s close and today’s open. They show you which side of the market is most favorable for extracting a profit–the long side or the short side. Finding an entry and exit, as well as controlling risk, is up to you. The indicator does provide the occasional trade signal when one of the indicators flips from positive to negative, or vice versa. Ideally, use the indicators in combination, as signals are more powerful when both indicators confirm each other.