Cryptocurrency trading is a strategy that enables crypto investors to acquire cryptocurrency and moreover improves the living standard of individuals. Trading is a journey that requires strategy and discipline, or one can place their investment in risks. Therefore, traders have a strategy that increases their profits and minimizing their losses, some of these strategies are moving averages. So, what is this moving strategy and how does it help investors and individuals alike to improve their trading journey?
Moving average is a technical analysis strategy that traders use to maximize their profits by identifying trends in the price of cryptocurrency.
Cryptocurrencies are volatile, and trading crypto can be sometimes risky, however, its volatility can either be positive or negative. Therefore, traders ensure to use the strategy to increase their chances of making heavy returns. So, what is the moving average and how do traders use the technique to acquire heavy returns and minimize their risks? This guide will provide all these details.
What Is The Moving Average?
As stated earlier, the moving average is a technical analysis tool that helps traders analyze the potential entry, risks and exit points in a crypto trading chart. While trading there are risky points that traders might not be sure to enter or points to exit their positions. Through the help of moving averages, traders use the technique to know when to buy or sell their crypto assets. Besides, there are two types of moving averages that crypto traders use to amylase the market. Traders can either use a simple moving average or an exponential moving average during trading.
Simple Moving Average (SMA)
This is an indicator that calculates the average number of days a crypto asset takes to close a price. Most crypto traders can take 50 to 200 days SMA. Using a 50-day SMA means that SMA will take an average of 50 days to close the price. The aftermath is normally displayed on the charts as a line graph set against the price.
Exponential Moving Average (EMA)
This is a type of strategy that provides the importance of recent price data. They provide recent price changes in the market and are therefore preferred by a number of traders in cryptocurrency. EMA calculates the average in
a manner that indicates the most recent price. Additionally, EMA behaves the moment that changes happen in asset prices in the financial market.
Moving average is an important tool that traders need to enhance their day-to-day trade, MA helps traders in the market in more significant ways than traders could do it on their own. For example, it identifies whether the market is on an uptrend or downtrend, generating signals to traders and besides, and it ensures that traders are fed with potential support and resistance in the market.
Ways To Emphasize MA in Trading
To acquire maximum profit and minimum losses traders should be able to identify whether the market is on an upward trend or downward trend, when the market is moving upwards, it indicates that the bulls are controlling the market at that moment. But, if it happens that the market is facing a downtrend, then the bears are in control of the market. So how can traders use the moving average in their trading journey to identify this?
The moving average is used to determine a bullish crossover in crypto trading. Bullish crossover is a technical analysis that gives traders a signal when the short-term moving average crosses over the long-term moving average, typically referred to as a golden cross. For example, if an individual is using the 50-day MA, and by any chance it crosses above the
200-day MA, the bullish crossover is certain. This confirms that bulls are controlling the market at the moment.
But how do we confirm a bearish crossover? It is basically the opposite of bullish crossover; bearish crossover occurs the moment a short-term moving average crosses a long-term moving average. This indicates that the bears are the rulers of the market. In a bearish crossover, if an individual is using the 50-day MA and it happens to cross below the 200-day MA, then it is certain to be a bearish crossover.
Additionally, traders can use moving averages in different ways, for example, some traders use the concept to acquire signals while others emphasize the concept to recognize the level of support and the level of resistance in a chart. This helps individuals to set an objective that aids them in acquiring more profits and decreasing the potential losses in their trades.
Trading cryptocurrency is risky and thus requires traders to be cautious, it is volatile and can lead to losses. By engaging in a moving average strategy, traders are able to make profits through the opportunities it offers. For instance, most traders identify support and resistance using the strategy and moreover, it offers signals to individuals. Besides, to incur better and heavier returns in your trade, traders should use moving averages with other technical analysis tools. Moreover, traders are encouraged to use moving averages and other technical analyses to improve their trading scores.