Tag: xbt, bitcoin price, tech analysis, moving average, MA, specific time, upward trend and downward trend, bullish and bearish signals
What is a moving average?
A moving average is a statistic that shows the average change in a data series within a specific past time range. In finance, moving averages are often used to identify the trend direction of crypto or to determine its support and resistance levels. An upward trend in a moving average might tell an increase in the price of crypto, while a downward trend is showing a sign of decline. There is a wide variety of moving averages to choose from, ranging from simple measures to complex formulas that require a computer program to efficiently calculate.
Moving averages are a flexible and customizable indicator. A trader can choose whatever time period they want when making a computer program to do the average calculation. The most common time periods applied in the MA are 5, 20, 60, 120, and 200 days. The shorter the time span when calculated, the more sensitive it will be to cryptocurrency price changes.
Usually, shorter MAs are used for short-term trading, while longer-term MAs are more suitable for long-term traders. The longer the time period is calculated, the greater the lag will be reflected in the moving average. In this case, a 200-day moving average(MA200) will have a greater degree of lag than a 20-day moving average(MA20) because it contains prices for the past 200 days. The 50-day and 200-day moving average are widely used by investors and traders, which are considered to be important trading signals.
Types of Moving Averages
Simple Moving Average
A simple moving average (SMA) is the arithmetic average line of prices in a specific period of time created by connections of the average of prices. For example, to calculate the moving average for 15-day, a trader can add up the closed prices of the last 15-day which, includes today, and divide them by 15.
Exponential Moving Average
Exponential moving averages (EMA) is a weighted average that gives greater importance to the recent price of a cryptocurrency on closer days. It is more responsive to new information.
What a Moving Average indicates?
Moving average is a commonly used technical analysis tool in finance. The reason for calculating the moving average of a cryptocurrency is to remove the uncertainty of price fluctuation in a specific period of time and smooth out the price data through a constantly updated average price. A rising MA indicates that the cryptocurrency is in an uptrend, while a declining MA indicates that it is in a downtrend. Meanwhile, upward momentum is confirmed with a bullish crossover, which occurs when a short-term MA crosses above a longer-term MA. And downward momentum is confirmed with a bearish crossover, which occurs when a short-term MA crosses below a longer-term MA.
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