How to Use Moving Averages, SMA, EMA to Trade Cryptocurrency (2024)

FAQs

How do you use moving average to trade crypto profitably? ›

Simple Moving Average

This moving average, as the name implies, is a simple line that represents the closing price of a cryptocurrency, which is averaged out over a period of time. In layman's terms, you simply write down the closing prices for say the last 30 days, add them all up, and then divide that total by 30.

To work out an EMA, you start with the SMA data. A multiplier is then added that increases the weighting of the newer price data. In order to work out the EMA itself, you will also need to call upon a whole host of other data, including the previous day's EMA.

The most commonly used moving averages span over 50, 100 or 200 days. Traders keep a close watch on 50-day and 200-day moving averages.

Short-term traders typically rely on the 12- or 26-day EMA, while the ever-popular 50-day and 200-day EMA is used by long-term investors.

Place a 5-8-13 simple moving average (SMA) combination on the two-minute chart to identify strong trends that can be bought or sold short on counter swings, as well as to get a warning of impending trend changes that are inevitable in a typical market day. This scalp trading strategy is easy to master.

Further, it becomes important to check for the time period in which both these indicators help in generating comparatively better results. So, here for SMA, one can rely on the 5, 8, or 13 periods moving average or the combination of three while the ideal EMA setting for intraday trading is 8 or 20 periods.

Since EMAs place a higher weighting on recent data than on older data, they are more reactive to the latest price changes than SMAs are, which makes the results from EMAs more timely and explains why the EMA is the preferred average among many traders.

The combination of 5-, 8- and 13-bar simple moving averages (SMAs) offers a perfect fit for day trading strategies. These are Fibonacci-tuned settings that have withstood the test of time, but interpretive skills are required to use the settings appropriately.

It makes EMA more sensitive and more responsive to the current market conditions. Therefore, the exponential moving average may be considered the best moving average for a 5 min chart. A 20-period moving average will suit best. The MACD indicator is based on the exponential moving averages.

What EMA do professional traders use? ›

Using EMA Crossovers as a Buy/Sell Indicator

The most commonly used EMAs by forex traders are 5, 10, 12, 20, 26, 50, 100, and 200. Traders operating off of shorter timeframe charts, such as the five- or 15-minute charts, are more likely to use shorter-term EMAs, such as the 5 and 10.

The 200-day SMA is popular for identifying the trend. If the market is above the 200-day SMA, the trend is considered to be up and if the market is below the SMA, the trend is considered down. Short-term traders have made the 10-day EMA popular based on its use by some famous traders.

Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current.

The 8- and 20-day EMA tend to be the most popular time frames for day traders while the 50 and 200-day EMA are better suited for long term investors.

As the 7 & 14 EMA are more sensitive, the lagging effect will be reduced to a certain extent. The best moving average to use is the 7 or 14 exponential moving average (EMA) as it is more responsive to price fluctuations when compared to a simple or smooth moving average.

Exponential Moving Average (EMA or EWMA)

Exponential moving averages give more weight to the most recent periods. This makes them more reliable than the SMA and a better representation of the recent performance of the security and hence can be used to create a better moving average strategy.

The simplest way is to just plot a single moving average on the chart. When price action tends to stay above the moving average, it signals that price is in a general UPTREND. If price action tends to stay below the moving average, then it indicates that it is in a DOWNTREND.

The idea of using 3 moving averages of different periods to create a strategy is to get an idea of the different trends in the market: long-term, medium-term, and short-term trends.

With moving averages in general, the longer the time period, the slower it is to react to price movement. But with all else being equal, an EMA will track price more closely than an SMA. Because of this, the exponential moving average is typically considered more appropriate for short-term trading.

The EMA indicator is regarded as one of the best indicators for scalping since it responds more quickly to recent price changes than to older price changes. Traders use this technical indicator for obtaining buying and selling signals that stem from crossovers and divergences of the historical averages.

Which is faster EMA or SMA? ›

SMA and EMA are calculated differently. The calculation makes the EMA quicker to react to price changes and the SMA react slower. That is the main difference between the two. One is not necessarily better than another.

Trendlines. Trendlines are also often used in conjunction with moving averages, as they can provide confirmation a market is in a trend or indicate it has entered a ranging area.

There are a number of popular Simple Moving Averages (SMA), however, each will be determined by trading style and the desired time frame when trading. The most popular simple moving averages include the 10, 20, 50, 100 and 200.

The basic rule for trading with the SMA is that a security trading above its SMA is in an uptrend, while a security trading below its SMA is in a downtrend. For example, a security trading above its 20-day SMA is thought to be in a short-term uptrend.

The SMA is the most commonly used financial indicator and is mainly used to identify trends. The SMA is a lagging indicator because it is very much based on the data of past prices. The SMA and EMA work best together to define price trends and momentum in trading.

The 50-day simple moving average (SMA)is popular with traders and market analysts because historical analysis of price movements shows it to be an effective trend indicator. The 50-, 100-, and 200-day moving averages are probably among the most commonly found lines drawn on any trader's or analyst's charts.

What is the 9/30 trading strategy? The 9/30 trading strategy is a trend-following strategy that is based on two moving averages — a 9-period EMA (exponential moving average) and a 30-period WMA (weighted moving average). It uses the two moving averages to spot trading opportunities when there is a pullback.

EMA (Exponential Moving Average) 5 Crossover is a strategy that shows the current trend of a stock when a short term moving average crosses a long term moving average (i.e. EMA 5 crosses EMA 20 when the trend changes). Hence, it provides you an indication to enter a position right at the beginning of a new trend.

In a scalping strategy, a buy position must match the following criteria: To establish a buy position, we must wait for the 50 EMA (Exponential Moving Average) to cross above the 100 EMA.

Go long 10 pips above the 20-period EMA. For an aggressive trade, place a stop at the swing low on the five-minute chart. For a conservative trade, place a stop 20 pips below the 20-period EMA. Sell half of the position at entry plus the amount risked; move the stop on the second half to breakeven.

Which indicators does professional traders use? ›

Moving Average Convergence Divergence (MACD)

MACD Indicator is used by traders to evaluate the market trend within a time interval. Traders use this to understand the relationship between trends and the momentum of the stock prices.

If the 5 EMA (red) crosses the 8 EMA (blue) and the 13 EMA (magenta) upwards and they tend to form an intersection, it indicates that price is about to take an upward spin. Furthermore, sequel to such if a bullish candle closes above the 5 EMA (red), initiate a buy position.

The relative strength index (RSI) is among the most popular technical indicators for identifying overbought or oversold stocks. The RSI is bound between 0 and 100. Traditionally, a reading above 70 indicates overbought ad below 30 oversold.

The downward crossover of the 50-day EMA through the 200-day EMA signals a death cross that many technicians believe marks the end of an uptrend. An upward crossover or golden cross is alleged to possess similar magic properties in establishing a new uptrend.

Connection to the Golden Cross

The golden cross occurs when the 50-day moving average of a stock crosses above its 200-day moving average. The golden cross, in direct contrast to the cross of death, is a strong bullish market signal, indicating the start of a long-term uptrend.

The 50-day moving average is calculated by summing up the past 50 data points and then dividing the result by 50, while the 200-day moving average is calculated by summing the past 200 days and dividing the result by 200.

Scalpers generally operate by creating a spread, or buying at the bid price and selling at the asking price, so that value distinguishes between the two value centers. Crypto scalpers try to hold their positions for a brief time, reducing the risk associated with the tactic.

Generally, traders use 20-day SMA, 50-day SMA and 200-day SMA to determine trades. Whenever a short-term moving average crosses over (cuts from below) a long-term moving average, we call it a golden crossover and take it as a bullish sign to enter the market on the buy side.

What is a Golden Cross? A Golden Cross is a basic technical indicator that occurs in the market when a short-term moving average (50-day) of an asset rises above a long-term moving average (200-day). When traders see a Golden Cross occur, they view this chart pattern as indicative of a strong bull market.

Is moving average trading profitable? ›

So, it's good to know what it means. Can a smoother moving average be used profitably in the stock market? Yes, smoothed moving average strategies do work. Our backtests show that a smoothed moving average strategy can be used profitably for both mean-reversion and trend-following strategies on stocks.

In summary, moving averages are a brilliant tool to have in your trading toolkit, but they're unlikely to make you much money in the long run by themselves. Moving averages are best used to confirm market conditions, rather than for timing your market entry.

Using Moving Averages

Traders can also visualize short-term and long-term support and resistance on a chart by adding moving average lines of different time periods. For example, a trader could use the 13EMA as a short-term indicator and the 200 EMA as a longer-term indicator on the same chart.

Securities often show a cyclical pattern of behavior that is not captured by moving averages. That is, if a market is bouncing up and down a lot, moving averages are not likely to capture any meaningful trends. The purpose of any trend is to predict where the price of a security will be in the future.

The most commonly used moving average is a so-called simple moving average (SMA), which is the average closing price of a given security over a specific number of days. For example, you can find a stock's 20-day SMA by adding its prices over 20 days, then dividing that number by 20.

The Big Three trading strategy includes RSI, ADX, and IBS. These technical indicators are good for short-term mean-reversion or trend-following strategies. They complement each other. RSI and ADX are good for short-term reversals, and opposite, ADX is a quality indicator for trend-following strategies.

What is the 1 hour forex strategy? The one-hour trading strategy is simply the timeframe that you conduct your analysis on any forex pair. The intraday strategy is becoming increasingly popular due to the number of ways a forex pair can be analysed during the one-hour timeframe.