The financial market is one of the most complex systems in the world. There’s a saying that no one understands the financial market and this is because so many people are playing ball here. We have the banks and the large institutions trading in this market and we also have the retail traders doing their bit. The only way the market makes sense is by looking at the price of any asset at a particular point in time. You can now make sense of those price movements and try to predict where the price is going next. This is called technical analysis and there are many types of indicators used in technical analysis. One of them is moving averages and in this article, we want to take a look at moving averages.
What is a moving average?
A moving average is a simple analytical tool used to calculate the average of price data over a defined time frame. The advantage of calculating the moving average is that the impacts of short-term price fluctuations are easily measurable.
How to trade moving averages from A-Z
Step 1: Choose between EMA or SMA.
EMA stands for exponential moving average while SMA stands for a smoothed moving average. If you have been trading moving averages for a long time, then you will have chosen between EMA or SMA. However, if you are relatively new to this technical indicator, you should research both of them. The differences between the two moving averages are quite subtle and there is only one definable difference between both of them; SPEED. The EMA recognizes price movements faster than the SMA.
With a moving average, you can have a more satisfying experience on Bitcoin Up. You are more informed and can make the best trading choices with the aid of these statistics.
Step 2: Pick your ideal trading period
Moving averages rely greatly on the trading period. Ironically, moving averages work because most traders use them in their trading and you need to go with the crowd to enjoy the best results. Swing traders, scalp traders, and day traders use different period settings for best results. If you are a swing trader, that means you are trading on higher time frames, and you should stick with the 50 period moving averages. You can also use higher periods like the 100, 200 & 250 periods if you are a swing trader. If you are a day trader, that means you trade on shorter time frames and you should stick with 9 or 10 periods, 21 periods, and 50 periods.
Step 3: Pick your ideal moving average trading method
One way you can trade moving averages is by following trends and filtering. If you are a day trader, you can stay ahead of the market with moving averages by trading the 10 periods. If you use a fast EMA to stay on course throughout your trade. As a swing trader, you can also trade trends successfully. The golden cross and the death cross are suitable for traders who use 50 and 200 periods.
Another way you can effectively trade moving averages is through the well-known support and resistance placement. You can use moving averages along with your support and resistance to show you where the price of a particular is playing. However, you should know that moving averages do not work in ranging markets. A ranging market means that the price is hovering around a very small area and it will be more difficult to determine the average price movement.
Summary
If you are a newbie crypto technical trader, you should add moving averages to your trading arsenal. A lot f professional traders use moving averages to show them the general price movement of any asset. If you can successfully learn how to analyze and trade moving averages, you will take your trading game to a whole new level.
