The crypto market is difficult and involves more than selling and buying crypto assets. Being a trader and investor in crypto requires patience and a good understanding of psychology. To remain successful in the crypto market, traders and investors are constantly looking for new trading strategies. They use indicators, oscillators and chart patterns, which can give them an advantage and help them to be profitable. Research has shown that crypto markets range by more than 70%. However, traders can spot trends in the rest of the market. We will now discuss the Exponential moving average (EMA), which is a widely-used indicator by investors and traders to stay profitable and ride huge trends in crypto markets.
What is Exponential Moving Average?
The Exponential Moving Average is a type of Moving Average tool employed in the technical analysis of crypto assets by many traders and investors to spot potential buying and selling areas and identify an asset’s current trend.
Two common Moving Averages are the Simple Moving Average and Exponential Moving Average. EMA is the preferred choice of traders as it helps to filter volatility and price changes that are associated with trading in crypto markets. It gives traders a more real value than the SMA and places more emphasis on the most recent price data.
Trading with EMA opens up more trading opportunities. It allows traders to spot dynamic support and resistance and allow them to trade when they are against the trend.
Trading is not a complicated process. You do not have to know the exact formulas to calculate the Exponential Moving average. Instead, use it to analyse your crypto assets on tradingview.com.
How to use EMA and ride massive trends
Exponential Moving Averages, commonly known as the 200-day EMA and 50-day EMA are used for long-term trading to identify trends and ride the early ones based on high timeframes. Short-term traders will use the 20-day EMA for short-term trades to identify trends, entry, exits and possible price reversals.
Examples of 50 and 200-day EMA
The chart shows that the Bitcoin/United States Dollars (BTCUSD), trades below both the 200 and 50 EMA. This indicates a downward trend in price. However, the 200 and 50-day EMA act as resistances to the Bitcoin price (BTC), preventing it from rising. A price movement is reflected in the 50 EMA faster than the 200 EMA. Therefore, a close below the 50 EMA and close above it will indicate a possible change from bullish to bearish.
Example of 8-Day Exponential Moving average
Short-term trades can use the Exponential Moving Average (8 and 20 days) to identify short trends. A crossover below the 8-day EMA could signify a change in prices from a downtrend towards an uptrend. If prices close above the 20 and 8 EMA, it could indicate a possible change in market sentiment from bullish to bearish.
It is a good idea to trade the indicator together with other chart patterns and trading strategies, such as the one in the image above. This will provide better confirmation for trading and increase profitability.
Featured image from zipmex. Charts from Tradingview