How to Read Crypto Signals

The basics of crypto signals

Crypto signals are a subset of trading signals, which are recommendations for entering a trade at a particular time and under certain specified conditions. Typically, a trading signal will specify the cryptocurrency pair, the spread of potential gains (%), and the timing for entering and exiting the trade. Other parameters of signals are explained below in more detail.

Crypto signals are generated by experienced human traders or by trading algorithms, and are based on a technical analysis of market movements. A chart tracks the movement of the market (e.g., the changes in the exchange rate of a cryptocurrency pair). The most common chart format is the so-called candlestick chart, which conveniently summarizes the entry and exit points for trades.

Common signal types

Signals can be provided for free or as a paid service generated by humans or algorithms, and can tell you when to enter a trade so as to make the most gains, when to exit to reduce losses, or both. There are a few common types of signals that apply to trade signals in general and crypto signals in particular. These types derive from common techniques in chart analysis.

Momentum

Momentum signals are meant to exploit herd behavior in markets. Herd behavior is endemic in finance, so momentum strategies apply in crypto as well as in the stock market. In finance, momentum is the rate at which an asset price changes. It indicates how long a price trend will be sustained going forward. Momentum trading means buying while the momentum is building up and selling after it looks to have peaked (or vice versa).

Breakout 

Breakouts are instances in which an asset’s price “breaks out” by either moving above a resistance level, or below a certain support level. At that point, there is an opportunity to gain from taking a long or a short position, respectively. It works the same way in crypto, and there are trading signals that can tell you when to place trades in anticipation of a breakout.

“Buying the dips”

This means buying an asset that has “dipped,” or dropped in price. The idea is to bet on the expectation that it will bounce back soon, so that buying it at the low price is effectively a bargain. The same logic applies in crypto.

Trend-following

Finally, there are signals derived from the trend-following strategy. This is similar to momentum in that it tries to exploit the mass behavior of other traders that builds up a sustained trend. The difference is that trend-following is more macroscopic and backward-looking, and does not aim at capturing the moment of momentum exhaustion to exit or enter a trade.

Where to get crypto signals

Where do signals come from? Usually, they are available through specialized providers that are tied to one or more crypto exchanges. These providers are typically marketplaces and differ in terms of the frequency of signals, how many coins they support, how large their subscription base is, and whether signals are offered for free or for a fee. To get a better sense of how this works, take a look at the 3Commas dedicated page on crypto signals.

Signal providers also differ in the range of channels they use. Usually, it is possible to receive crypto signals through specialized apps for iOS and Android, and sometimes they are also available through desktop applications. Many signal providers also use dedicated channels in popular messengers like Telegram or Discord, although more often these messengers are used for support while the actual signals are administered by Telegram bots or private chats.

Pros of crypto signals

Using crypto signals has a lot of advantages. They provide timely information in a format that’s suited for fast decision-making. Instead of analyzing the market yourself, you can simply execute transactions based on the signals. Furthermore, you can build your own signals using a custom set of indicators. 

Signals are not always right, but with the range of signal providers now available you can reasonably assess their accuracy and determine whom to trust. In a fast-moving market environment like crypto, timely trading alerts are increasingly necessary, so it is worth giving thought to using signals.

In short, crypto signals are great because:

• They can be quite profitable.
• They free up your time from doing research yourself.
• They can be used as an opportunity to learn from experienced traders by analyzing their signals.

How to get started

Now that we’re gone through with the basics, let’s get our hands dirty. This section describes how to actually read trading signals. Here’s a breakdown of what you should do in a few easy steps:

Pick a provider

Do your research by looking at the top signal providers and pick one or more that fit your preferences regarding crypto asset classes, pricing, signal frequency, and additional perks that come with the signals. You can look at aggregators like Safetrading, which rank signal providers according to their accuracy and profitability.

Prepare the software

By software, we mean either the apps of the signal providers or the messengers through which they communicate. Usually, this means simply downloading and installing Telegram, which is by far the most popular messenger app among crypto enthusiasts. After installing Telegram, find your provider’s channel or bot and start receiving signals! Alternatively, download and install the mobile app and follow the on-screen instructions.

Get your first signals

Now you’re ready to get your first crypto trading signals. Basically, there are three broad categories of signals:

• Take Profit signals recommend closing a trade at a profit once your profit reaches a certain threshold specified in advance.
• Stop Loss signals recommend exiting a trade once losses reach a certain threshold specified in advance to protect you from further losses.
• Action signals recommend buying or selling certain assets.

Typically, action signal recommendations come with some additional information on the parameters of the trade. Check out the next section to find out how to read them.

How to read signals: an example

So, now you’ve received your first crypto signal, but how do you read it? Crypto signals come in different forms and are often accompanied by charts. However, there are certain typical elements that are present in most signals. Learning their meaning will help you interpret any crypto signal, regardless of which particular elements are used.

Let’s consider an example first. Here’s a screenshot from a Telegram-based signal provider called Crypto Signals. In Telegram, crypto signals typically take the form of messages in this format. So what can we learn from this signal?

Instrument

Instrument here simply means the cryptocurrency pair that is suggested. In our example, it is Bancor to USD.

Order

Buy Stop. This is the type of order that is suggested. A buy-stop order is a recommendation to buy an asset and stop buying it once a specified threshold is reached. In our example, this threshold is specified as Stop.

Entry Price

Entry price is pretty self-explanatory. This is the suggested price to enter a trade; in our case, it is $3.60. This will be the default price from which potential profits and losses are calculated.

Stop

This is the price threshold: once it is hit, one should stop buying BNT according to the signal.

Target

This is the price after which it will be profitable to sell BNT instead of buying it. In other words, once the price of BNT reaches $4.10, the signal tells you to start selling the trading pair to make a profit.

Recommended risk

This is the suggested maximum level of risk one should accept for entering the trade. In this example, the difference between the entry price and the stop price is $0.25. With a recommended risk of 1%, you should not enter the trade if you don’t have at least $25 in your account.

Risk-to-Reward Ratio

RRR is the risk-to-reward ratio. In this case, it can be calculated in a pretty straightforward manner. The upside risk, or the profit potential, is $4.10 - $3.60 = $0.50. That is the maximum amount of USD you can expect to gain on every BNT from this trade. The downside risk, or risk proper, is $3.60 - $3.35 = $0.25. That is the maximum amount of USD you can lose on every BNT until the trade stops. RRR reflects this proportion: $0.25 compared to $0.50 is a 1:2 ratio. In other words, to gain $0.50 in this trade, you should be willing to risk $0.25.

Typical elements of a crypto signal

The example explained above doesn’t cover the entire variety of forms in which crypto signals are provided. Here are common elements that are usually included with signals in one way or another. It is worth learning them to understand the different kinds of crypto signals that can be offered. The best crypto signals should contain the following key data points:

Crypto pair

This is the most obvious element of any signal: it should at least tell you which trading pair to enter.

Long vs. short

Leaving aside some of the more specific things like buy stop orders, simple action signals should tell you whether you should take a long or a short position on a given currency pair. In financial parlance, a long trade means buying an asset with an expectation to sell it at a higher price in the future. A short trade means borrowing an asset to sell it with an expectation that it will rapidly fall in price so that it will be possible to repurchase it at a lower price, return it to the owner, and pocket the profits.

Basically, taking a long position on an asset means buying and holding it, while taking a short position means selling. Here’s an example of a list of crypto signals provided by HIRN Crypto, a free signal provider compatible with 3Commas. As you can see, it recommends taking a long position on all the pairs that are displayed.

Limit order vs. market order

A limit order is an order to buy or sell an asset at a specified price or better. Depending on the strategy, “better” may mean higher or lower. The idea is simple: instead of executing the transaction immediately at the actual market rates, a limit order will only be executed once the specified conditions are satisfied. 

A limit order is a conditional order, whereas a market order is executed immediately. In many cases, it makes perfect sense to rely on limit orders instead of market orders, especially in such a fast-paced environment as crypto where market prices are constantly changing. Therefore, a crypto signal will often specify if a limit order should be placed.

Stop-loss order price

This is a risk management tool designed to limit losses if the strategy does not work for this particular trade or something goes against the strategy. In our example above, the stop price is set at $3.35, specifying the threshold that will trigger the stop-loss order. When the stop-loss kicks in, the position will be closed automatically and prevent greater losses.

Take profit price

This is the opposite of the stop-loss order price. This data point in a crypto signal tells you when to act to capture the upside. In our example above, it is called “Target” and set at $4.10, meaning that once the price reaches this level, the position will automatically be closed at a profit.

Risk and reward ratio

This is a crucial metric that should be provided with any crypto signal. It shows how much money one should be able to put at risk in order to secure a profit. For example, a 1 to 2 ratio as in the example above means that for a profit of $2 per BNT, one should be willing to risk $1.

To sum up

Crypto signals are convenient trading recommendations available in various forms, for free or for a fee, usually either through Telegram or a dedicated mobile app. The most common types of crypto signals reflect the basic trading strategies that are used in crypto as well as in the conventional stock market. To be able to read and understand crypto signals, one should know the meaning of the key data points that should be included in any crypto signal.

These data points are: the currency pair, long or short position, limit order or market order, stop-loss order price, take profit order price, and the risk-to-reward ratio. Some signal providers give more information, such as including technical charts on which the signals are based. However, to use signals, it is enough to know the five crucial elements as described above.

Conclusion: Navigating the Landscape of Crypto Signals in 2023

Cryptocurrency trading has evolved significantly since the inception of crypto signals. As we approach the end of 2023, understanding and using these signals remains a pivotal part of the digital asset trading arena. Through this article, we have traversed the fundamental aspects of crypto signals, which help both novices and seasoned traders in making informed decisions.

The beauty of crypto signals lies in their ability to condense complex market data into actionable insights. While the underlying principles of these signals have stayed consistent, the increased adoption of digital assets, advent of more sophisticated algorithms, and surge in the number of crypto trading platforms have further underscored their relevance.

It's crucial to reiterate the types of signals available for traders:

1. Momentum: Capitalizing on the rate of change in asset prices.
2. Breakout: Identifying and acting upon the movement of an asset's price beyond established resistance or support levels.
3. Buying the Dips: Purchasing assets during a decline in anticipation of a price rebound.
4. Trend-following: Adopting a macro perspective to understand sustained market movements.

With a multitude of signal providers available in 2023, a pertinent consideration remains the source of these signals. Whether generated by experienced human analysts or sophisticated trading algorithms, it's essential to evaluate the credibility, past performance, and consistency of these signals. The diverse array of channels, including mobile apps, desktop platforms, and popular messenger services like Telegram or Discord, facilitate seamless access to these insights.

One of the salient features of the current crypto trading landscape is the intersection of traditional financial strategies and cutting-edge technology. As the market grows in complexity and volume, the tools employed by traders must match the pace. Crypto signals serve as a bridge between raw data and decipherable information, enabling traders to navigate the tumultuous waters of the crypto market efficiently.

The adaptability of crypto signals to the rapidly changing market dynamics is a testament to their enduring relevance. Whether it's predicting short-term price fluctuations or gauging long-term trends, these signals provide traders with the tools they need to make decisions with greater confidence.

Furthermore, the advancement in the interoperability of trading platforms has provided a broader canvas for crypto signals. With decentralized finance (DeFi) platforms and other blockchain-based solutions becoming more prevalent, the scope of these signals has expanded. This, coupled with the ongoing integration of AI and machine learning, has ensured that crypto signals remain a central pillar in the digital trading domain.

To the uninitiated, the world of cryptocurrency can seem labyrinthine. Yet, tools like crypto signals act as compasses, providing direction amidst potential uncertainty. However, it's paramount for traders to remember that while signals offer valuable insights, they are not infallible. Continuous learning, market research, and prudent risk management should accompany any trading strategy.

As we reflect upon the current landscape of crypto trading, it's evident that while the market's foundational principles remain unchanged, the tools and strategies employed have undergone profound evolution. Crypto signals, with their blend of traditional trading wisdom and modern technological prowess, epitomize this synthesis. As the crypto market continues its journey, traders equipped with the knowledge and discernment to use these signals will find themselves better positioned to harness its potential.