4 Free Bitcoin Overbought & Oversold Indicators
The best tools for beginners and advanced users to help you figure out when it’s time to sell or buy Bitcoin.
When crypto is very volatile it’s good to have access to some tools to help you understand, whether Bitcoin and other cryptocurrencies are overbought or oversold. My previous article 8 Free Bitcoin Indicators has received a lot of positive feedback. You should check it out here:
Now, let’s jump right in and take a look at 4 of my favorite free oversold & overbought indicators!
1. Relative Strength Index (RSI)
This is probably the most popular free overbought / oversold indicator for crypto. It is a line graph that moves between two extremes.
A Bitcoin RSI over 70 indicates that it is overbought and under 30 indicates it is oversold.
Free RSI can be found from the Bitcoin-USD chart on tradingview.com and cryptopurview.com.
2. Market value to realized value ratio (MVRV)
This is another very useful overbought / oversold indicator for Bitcoin. Here is how to read it:
MVRV = Asset’s Market Capitalization / Asset’s Realized Capitalization
Market capitalization = current price * circulating supply
Realized capitalization = total price of all coins when they last transacted on chain (what people have paid for Bitcoin added up)
According to Glassnode, a MVRV > 3.5 indicates a strong signal for late-stage bull cycles. By contrast, a MVRV < 1.0 indicates a strong signal of market capitulation and late-stage bear accumulations.
Free MVRV charts can be found on coinmetrics.io and woobull.com.
3. Bollinger Bands
A Bollinger Band includes 3 lines: a simple moving average, a positive, and a negative standard deviation (SD).
The closer the price moves to the upper SD line, the more overbought a market. The closer the prices move to the lower SD line, the more oversold the market.
You can set up the Bollinger Band indicator with a free account on tradingview.com.
4. Bitcoin Fair Value
Bitcoin fair value is calculated based on the network value to transaction ratio (NVT) and on-chain data. The fair value helps to provide a reference to whether Bitcoin price is trading at premium or discount.
When the arrow is pointing more at the ‘discount’ side, then it indicates Bitcoin is undervalued, when it is pointing more to the ‘premium’ side, it indicates that Bitcoin is overvalued.
A few things to consider when using overbought or oversold indicators for Bitcoin
Never follow a single overbought / oversold indicator. It is important to look at several indicators to see if you can get a consistent conclusion for buy / sell signals.
As an investor, it is not wise to follow the buy / sell numbers given under each index strictly. Different sources suggest different values. For example, some suggest that when MVRV > 3 it is time to sell and take profit. Since we are just using the indicator as a reference, one can already start to sell when MVRV approaches 3. Same for buying. You can already make your first dollar-cost-average buy when MVRV approaches 1, then add more when it dips.
Bitcoin price is influenced by many factors. It is also important to look at other sources such as interest rate change by the central bank, government policies in regard to cryptocurrencies, the behavior of institutional investors, whales accumulation/ dump, etc.
One should not expect that when a signal indicates overbought or oversold, the market will reverse quickly. The market can have extended overbought or oversold periods. As a result, it is good to dollar cost average.
Do you know any websites that provide free crypto indicators? Please leave a comment below. I will constantly update my list and write new articles to recommend good indicators I have discovered.
