What are moving averages?
Moving averages are the most popular and simplest technical indicators. The moving average is indicator a method called “lag” that traders and investors use to determine the direction of a trend.
We are talking about the retarded because indicator follows the price. Its fluctuations depend on fluctuations in the price of the asset.
A moving average is the average price of an asset over a certain period of time.
It can be calculated for different periods, 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 on weekly charts: 50 weeks, 100 weeks, etc.
Moving averages for determining the trend
Moving averages are used to smooth; smooth volatility fluctuations in order to identify the overall trend. They tell you immediately if the market is going up or down.
In March 2018, when the price of bitcoin fell below the 200-day exponential moving average, this confirmed bear market and transition from an uptrend to a downtrend.
Moving averages as support and resistance
The use of moving averages goes further. They are sometimes used as dynamic support and resistance that move, as opposed to fixed horizontal or sloping support or resistance.
In this bitcoin chart, we can see that the 200-day moving average acts as dynamic price support and then acts as dynamic resistance.
What moving average to use with cryptocurrencies?
Cryptocurrencies are volatile, which is why I use a 200-day moving average on my charts. Not only does this allow me to take a step back and look into the longer term, but the 200-day moving average is often seen as a barrier separating a bull market from a bear market.
Read also Cryptocurrency trading: how to use the RSI indicator to predict reversals?
When the price rises above the 200-day moving average, the cryptocurrency is considered to be in an uptrend. And when the price moves lower, the market is considered bearish.
I have also noticed that the 200-day exponential moving average often acts as dynamic support or resistance.
Combine moving averages to generate trading signals?
Typically, analysts or traders use one or more moving averages to generate trading signals. Moving average crossovers are sometimes taken into account to assess a change in trend.
Financial advisor Brett Sifling of Gerber Kawasaki, a California-based asset management firm, said he prefers to use a combination of a 200-day long-term moving average and a 50-day short-term moving average.
Few will tell you because it’s easier/consistent when it’s up, but “less than 200mm per day”, a trend follower reference moving average, Nasdaq, CAC, or even bitcoin (risk assets) are in a downtrend. Therefore, we will wait for a strong buy signal.
It then takes into account the 50-day moving average for short-term fluctuations and takes into account the 200-day moving average for trend changes.