The moving average is one of the most adaptable indicators utilized by technical analysts and chart viewers. There are several types of moving averages to choose from, including the simple, exponential, and hull moving averages, and most other indicators include one in their calculation.
The moving average can be used on any chart time scale, from monthly to 1-minute. As a result, the moving average indicator is undoubtedly the most widely utilized indicator among forex and cryptocurrency traders.
In the following few minutes, we will define the moving average, how to read it, and several methods that a forex or cryptocurrency trader might employ with it.
Understanding the Moving Average Indicator
The moving average is a formula that is used to compute the average of a market’s movements over time in order to identify the trend’s direction and probable buy/sell zones.
The basic and exponential moving averages are the two most prevalent types of moving averages.
Fortunately, you won’t have to do any math because the charting software will do it for you.
The key distinction between the simple and exponential moving averages is how responsive the moving average is to the current price.
A simple moving average, for example, is a basic average of prices over a given time period. However, the simple moving average might be slow to adapt to market fluctuations. As a result, the exponential moving average was created to respond fast to dramatic market movements by significantly weighting recent values.
Each sort of moving average will have a “look back” time as an input period. This informs the formula about how many data points to include in the calculation. The most typical input periods are 50 and 200, however any full number can be utilized.
A line will be displayed on the price chart once the trader has chosen on the type of moving average and the look back input for the moving average. This line can indicate a variety of useful products. For example, the trend direction will be indicated by the direction of the line. The trend is stated to be up if the line is pointing higher, and down if the line is pointing downward.
Furthermore, the line’s current price level can operate as support and resistance, signaling price levels to buy or sell.
MA Indicator's Importance in Forex and Cryptocurrency
The moving average is one of the most common indicators used by forex and cryptocurrency traders due to its flexibility and versatility. Aside from the ability to customize your own look back input period and use it on any chart time frame, the moving average assists you in determining the direction of the trend and thus the side of the trade to be on.
Furthermore, the moving average can indicate price levels such as oversold and overbought conditions, which can aid in the prediction of rallies and corrections.
Trading cryptocurrency with the moving average is a simple process.
1. Log in to your account at a reputable cryptocurrency exchange, such as Bybit. Bring up a price chart of the digital asset you want to trade on a daily basis.
2. Apply a simple moving average of 20, 50, 100, or 200 periods to your chart.
3. When the moving average is pointing upward, it might be seen as a buy signal, and vice versa.
Using the MA Indicator in conjunction with Other Trading Strategies
The moving average indicator is incredibly useful and can be used independently. However, the cryptocurrency market is infamous for violent and volatile price swings that can wreck traders’ nerves and account balances. As a result, when learning to trade cryptocurrency, traders will use various indicators to assist them see patterns and signals more clearly.
Consider these techniques to help you get started if you are new to crypto trading.
The Moving Average Crossover Strategy
Two moving averages should be better than one. In a sideways market, the single-moving average on the price chart is prone to frequent false signals. Occasionally, cryptocurrency will make a significant price surge just to quickly reverse that trend. These erratic fluctuations might put traders who rely on a single moving average in a difficult position.
As a result, adding two moving averages of various lengths to the price chart will allow the trader to analyze trend direction without whipsaws. For example, on the chart, including the 50 and 200-period moving averages.
When the 50 line crosses above the 200 lines, the trend is stated to be upward, and traders are encouraged to purchase. When the 50 line crosses below the 200 lines, the trend is regarded to be downward, and traders should sell.
The ADX Moving Average Strategy
In trending markets, moving averages provide good clues. Sideways ranges are a moving average’s worst enemy. The Average Directional Indication is one indicator that can be used to filter out sideways ranges (ADX).
Apply the ADX to your chart; if it rises over 20, the market is trending, and moving averages will provide better signals. If the ADX falls below 20, a sideways range has formed, and traders should disregard any moving average signals they receive.
Moving Average Convergence Divergence Strategy
The Moving Average Convergence Divergence oscillator (MACD) is a common moving average indicator. This indicator integrates a number of components into a simple signal generator.
It is an additional indicator that can be added to your price chart and appears in a window at the bottom of the chart. There are two lines on it that can be traded in the same way as the Moving Average Crossover Strategy described above.
When the leading line crosses over the lagging line, it represents a buy indication. When the leading line falls below the lagging line, it is a bearish indication to sell.
The moving average is a popular indicator among forex and cryptocurrency traders.
Moving averages are commonly used in trading strategies for traders transitioning from forex to learning to trade cryptocurrency.