[ Crypto Trading with Moving Average ]-Steemit Crypto Academy | S6W2 | Homework Post for @shemul21 || By @janemorane

janemorane (73)Beginner[4,9]in SteemitCryptoAcademy • 3 years ago

Hello Beautiful people!

It's jane and today I am going to do my homework task of Crypto Trading With Moving average, for professor @shemul21. Personally, I have learned many things from this lecture and now I will submit my assignment according to my understanding.

1: Explain Your Understanding of Moving Average?

Moving Average:

A moving average is a technical indicator that market analysts and investors may use to assess the trend's direction. It's one of the first indicators that traders add to their charts, and it can be used as a stand-alone indicator or in conjunction with other indicators. To obtain an average, it adds up the data points of financial security over a particular period and divides the total by the number of data points. Because it is constantly recalculated based on the most recent price data, it is called a "moving" average. By analyzing the price fluctuations of an item, analysts utilize the moving average to look for support and resistance. A moving average indicates security's prior price action/movement. Analysts or investors then use the information to forecast the asset's price movement. It is regarded as a lagging indicator because it produces a signal or shows the direction of a given trend by trailing the price movement of the underlying item.
The Moving Average assists in determining the present situation's reference point. It is sometimes utilized to confirm market trends to acquire a stock market position.

^{Figure 1: (https://www.tradingview.com/chart/0Uf0smzq/}

2: What Are The Different Types of Moving Average? Differentiate Between Them.

There are several mathematical methods for calculating the average of a set of numbers. Each method will produce somewhat different results and focus on a different aspect of the data being calculated.

Types of Moving Average

Simple moving averages and exponential moving averages are two typical moving average calculations. On a chart, these moving averages will appear as a line above or below the price. Traders may have many moving averages on their charts at any given time, with various lines representing different trade moves.

Simple moving averages:(SMA)

The simple moving averages is established by adding up the closing prices of the previous x days and dividing by the number of days. A simple moving average (SMA) is calculated by taking the arithmetic mean of a series of values over a specific period of time.

Mathematically:
SMA=(A_1+A_2+⋯+A_n)/n

Where:
A=Average in period n
n=Number of time Period

Exponential Moving Average: (EMA)

The exponential moving average is a sort of moving average that gives current prices greater weight in order to make it more sensitive to new information because of a weighting variable in the calculation. This enables them more adaptive to price movements while also smoothing the line.
Exponential moving averages use a weighting multiplier to calculate the average of a series of integers, giving later data greater weight. EMAs can be calculated in three steps

Step 1:
In the very first we will determine the SMA or use yesterday’s closing price to begin

Step 2:
After determining the SMA or yesterday’s closing price we need to calculate the multiplier

Step 3:
Finally, we calculate the EMA by using price, the multiplier (time period) and the previous EMA value.

Mathematically:
EMAt = [Vt×(1+ds)] + EMAy × [1−(1+ds)]

where:

EMAt is EMA today.
Vt is Value today.
EMAy is EMA yesterdays.
“s” is Smoothing.
“d” is number of days.

Weighted Moving Average: (WMA)

The simple moving average has two flaws, according to technical analysts. The first issue is the moving average's period (MA). According to most technical analysts, the opening or closing stock price is insufficient for correctly projecting buy or sell signals from the MA's crossing action. Weighted moving averages allocate the highest weightage value to more current data points as they are more relevant than data points in the distant past.

Mathematically:

WMA=(〖Price〗_1×n+〖Price〗_2×(n-1)+⋯〖Price〗_n)/((n×(n+1))/2)

Where:

“n” is time period.

Difference Between SMA, EMA, WMA:

SMA	EMA	WMA
The SMA will react slow to the more recent price to the price fluctuation.	The EMA will react faster to the more recent price to price fluctuation then SMA.	The EMA will react faster to the more recent price to price fluctuation then both SMA & EMA because it give highest value to the recent period in an exponential way.
In long-term trading, the EMA will be more advantageous, smoother and ideal.	In short-term trading, the EMA will be advantageous.	WMA is a smart option when current data is more valuable.
The SMA considers the average price throughout time as well as the number of periods.	The EMA is calculated by smoothing today's value.	WMA starts with the most recent price.
A more durable SMA is one with a greater value.	A lower-valued EMA is more reliable.	Both WMAs with greater and lower values are reliable.

3: Identify Entry and Exit Points Using Moving Average. (Demonstrate with Screenshots)

The moving average indicator determines the Entry & Exit point of trade at any trading market. It also helps us that when will be the trend end. We can merge numerous MAs into a single one by modifying the timeline and numerical method. On a Bitcoin chart, plot the 100 days exponential moving average, 100 days simple moving average, and 100 day Weighted moving average together and compare them.

^{Figure 2: (https://www.tradingview.com/chart/0Uf0smzq/)}
As shown in the above screenshot, the price is more highly tied with the 100 day Weighted Moving Average (WMA) than the EMA and SMA. In a bullish trend, the 50 WMA is also the most effective dynamic support level.

Entry Point:

The current price at which we can invest or buy an asset is the entry point in investing. The entry point is determined by an investor using a well-researched trading technique that reduces investment risk and eliminates emotive decisions. The use of research and analysis will aid in making objective investing recommendations.

Exit Point:

The price at which an investor or trader ends a position is known as an exit point. Because they are buying assets for the long run, an investor will often sell to exit their deal.

Let's plot the 100 days simple moving average (SMA), and the 20 days exponential moving average (20 ema) together on a Bitcoin chart to illustrate the entry and exit points.

^{Figure 3: (https://www.tradingview.com/chart/0Uf0smzq/)}

The price is trading above the 100 SMA in the above screenshot, indicating that long-term buyers are actively engaged in the market and showing the uptrend. The price, on the other hand, is below the dynamic 20 EMA, which indicates that every bearish rejection from the EMA in the meantime pushes the price higher. In this scenario, the 20 EMA symbolizes the activity of short-term traders, and every rejection from the 20 EMA signals a potential purchasing target in the future in a bullish trend. Also, on the right hand side, we can also see the downtrading, indicating that long-term sellers are actively engaged in the market and are falling.

It indicates the price trending direction rather than the actual momentum. So, if the price is above the moving average, it suggests that the investor's expectations are higher than the share over the time period in question.

When the price falls below the moving average, it suggests that investors' current expectations for the asset are lower.

It's obvious that it doesn't convey a precise idea, thus it's not sufficient for confirmation on its own. It should be confirmed by other signs and trends.

And it offers you an indication late, after we already knew the price was decreasing, so it simply helps us to ensure that the price has already fallen below the moving average; we should not expect any miracles in the short term.

^{Figure 4: (https://www.tradingview.com/chart/0Uf0smzq/)}

4: What do you understand by Crossover? Explain in Your Own Words.

A moving average crossover happens when two or more moving averages cross paths, indicating a market trend shift. They occur when big price movements present themselves, pushing the lines up or down and forcing them to cross.

^{Figure 5:: (https://www.tradingview.com/chart/0Uf0smzq/)}

In the first example on the chart (left to right), we see how the 55 periods EMA (white for bitcoin responded to a sharp move up in price crossing paths with the 20 periods EMA line, thus confirming a bullish Signal.

5: Explain the Limitations of Moving Average.

Moving averages act as a vital building block in many technical analysis indicators, and they are abstractly significant to a multitude of trading concepts. However, every tool has shortcomings and limitations, and potential investing assets can turn into liabilities if they are correctly used or false because traders fail to realize their limitations and shortcomings. Some of the limitations of Moving average are:

Equivalent weighing is given to every one of the values utilized in the average calculation, while reasonable information is more vital to current circumstances.
This method used is to record a large amount of data from the past.
The one limitation of moving average analysis centers around its simplicity and subjective flexibility.
The fundamental rule of the moving average method is through the moving average to remove irregular time series of changes and further changes, hence showing the long-term trend of time series
More and extreme precaution is required when finding the time period of the moving average. There are no strict guidelines for selecting a time period. For selecting a time frame there are no fast and hard rules, and every individual should rely upon their own judgment.

6: Conclusion:

Crypto is one of the grooming trading platforms nowadays and a good source of income and doing investment. It provides many opportunities for the investor to earn online but earning from crypto is not easy due to the fluctuation of market trends regularly. One should understand the basics of crypto before going to invest in crypto. There are many indicators used to know about the current market trend, but the moving average is one of the famous indicators in trading and knowing the market trend.