5.1. what is ma
5.2. ma trading
5.3. ma trading strategy
Trading on Cryptocurrency Bitcoin/Etherium with Moving Average (MA)
A Moving Average is a popular indicator in technical analysis that helps smooth out price action by filtering out noise from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices. A moving average is calculated differently, depending on its type.
Moving averages lag current price action because they are based on past prices; the longer the time period for the moving average, the greater the lag. Thus, a 200-day MA will have a much greater degree of lag than a 20-day MA, because it contains prices for the past 200 days. The length of the moving average to use depends on the trading objectives, with shorter moving averages used for short-term trading and vice versa. The 50-day and 200-day MAs are widely followed by investors and traders, with breaks above and below this moving average considered to be important trading signals.
Moving averages also provide important trading signals, or when two averages cross over. A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates that it is in a downtrend. Similarly, upward momentum is confirmed with a bullish crossover, which occurs when a short-term moving average crosses above a longer-term moving average. Downward momentum is confirmed with a bearish crossover, which occurs when a short-term moving average crosses below a longer-term moving average.
Different investors use moving averages for different reasons. Some use them as their primary analytical tool, while others simply use them as a confidence builder to back up their investment decisions. The following are several popular uses for MAs.
A crossover is the most basic type of signal and is favored among many traders because it removes all emotion. The most basic type of crossover is when the price of an asset moves from one side of a moving average and closes on the other. Price crossovers are used by traders to identify shifts in momentum and can be used as a basic entry or exit strategy. As you can see in Figure 1, a cross below a moving average can signal the beginning of a downtrend and would likely be used by traders as a signal to close out any existing long positions. Conversely, a close above a moving average from below may suggest the beginning of a new uptrend.
Triple Crossover and the Moving Average Ribbon
Additional moving averages may be added to the chart to increase the validity of the signal. Many traders will place the five-, 10-, and 20-day moving averages onto a chart and wait until the five-day average crosses up through the others – this is generally the primary buy sign. Waiting for the10-day average to cross above the 20-day average is often used as confirmation, a tactic that often reduces the number of false signals. Increasing the number of moving averages, as seen in the triple crossover method, is one of the best ways to gauge the strength of a trend and the likelihood that the trend will continue.
A filter is any technique used in technical analysis to increase one's confidence about a certain trade. For example, many investors may choose to wait until a security crosses above a moving average and is at least 10% above the average before placing an order. This is an attempt to make sure the crossover is valid and to reduce the number of false signals. The downside about relying on filters too much is that some of the gain is given up and it could lead missing the opportune moment to trade.
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