What are moving averages?
Moving averages are the most popular and simple technical indicators. A moving average is a indicator technique called “lagata” that traders and investors use to determine the direction of the trend.
Let’s talk about retarded, because the indicator follows the price. Its fluctuations are a function of those of the price of the asset.
A moving average is the average price of an asset over a period of time.
It can be calculated over several periods, ranging from a few seconds to several months. However, the most common measures are 50 days, 100 days, and 200 days. You also often see these numbers used in weekly charts: 50 weeks, 100 weeks, etc.
Moving averages to identify the trend
Moving averages are used to it smooth the volatility of fluctuations to reveal a general trend. They let you know at a glance whether the market is going up or down.
In March 2018, when the price of Bitcoin fell below the 200-day EMA, it confirmed the bear market and a shift from an uptrend to a downtrend.
Moving averages such as support and resistance
The use of moving averages goes further. They are sometimes used as dynamic support and resistance, which move, as opposed to fixed horizontal or oblique support or resistance.
In this Bitcoin chart, we see that the 200-day moving average acts as a dynamic support for the price before acting as a dynamic resistance.
Which moving average to use with cryptocurrencies?
Cryptocurrencies are volatile, which is why I use the 200-day moving average in my charts. Not only does it allow me to step back and take a longer-term view, but the 200-day moving average is often seen as the barrier that separates a bull market from a bear market.
Read also Bitcoin price prediction: here is the crazy 7-digit price by 2030 according to the co-founder of BitMEX
When the price moves above the 200-day moving average, the cryptocurrency is considered to be in an uptrend. And when the price falls below, the market is considered bearish.
I have also noticed that the 200-day EMA often acts as a dynamic support or resistance.
Do you combine moving averages to generate trading signals?
It is common to see analysts or traders using one or more moving averages to generate trading signals. The crossing of the moving averages is sometimes taken into account to evaluate a change in trend.
Financial advisor Brett Sifling of Gerber Kawasaki, a California-based wealth management firm, said he prefers to use a combination of the 200-day long-term moving average and the 50-day short-term moving average.
It then looks at the 50-day moving average for short-term fluctuations and looks at the 200-day moving average for trend changes.