Crypto Trading with Moving Average - Crypto Academy |S6W2| - Homework Post for Professor @shemul21
Hello everyone. I welcome you all in the second week of the sixth season in the steemit crypto academy. This week, we have been delivered a lecture on Crypto Trading with Moving averages. This is my homework post for professor @shemul21.
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Question 1.
Explain Your Understanding of Moving Average.
The crypto market is highly versatile where the price of the coins are not stables and keep changing time to time. The traders keep doing the trading and their buying and selling pressure effect the movement of the market. The market behave according to the moves of the traders in the market. So the traders first analyze the market before taking the trading decision. There are multiple tools and strategies and the indicators are use to analyze the market to predict the future of the market.
The technical indicators are consider best to analyze the market. These tools use the price history to predict the market next move. The technical analysis help the traders to take the best trading decisions. The traders can get the best entry and exit spots using the technical tools and then can earn high profit. The Moving Average is one among them.
The Moving Average is a technical indicator which is use to analyze the crypto market. This indicator helps the traders to analyze the market and take the best trading decisions. This is a trend based indicator which is to to identify the market trend. This indicator also help the traders to identify the trend reversal point.
When the price of the coin break the Moving average line upward or downward, the trend reversal occur. This also give the traders best entry and exit spots. The moving average is represented in form of the line which oscillate on the chart. The line move upward or downward with change in the movement of price.
This is very important and useful indicator to predict the market future. This indicator is use frequently in the crypto market because it is easy to use and simple to understand. Not just trend identification of trend reversal, but this indicator can also be use to identify the support and resistance level.
The traders get the best entry and exit spots using the Moving average. They can use the MA to determine when to enter into the market and when they should sell their coins. This indicator show the behavior of the traders in the market. When the Price of the asset is moving above the MA line on the chart, its mean that the buying pressure is high than selling pressure. The buyers are in control and market is in bullish trend.
Similarly, when the price of the asset is moving below the MA line, it indicate that the selling pressure is high than the buying pressure. The sellers are in control and market is in bearish trend. When the price break the MA line moving upward or downward, the break out occur.
The MA default length is 9. But one can change it according to his trading plan and trading strategies. The MA use the data points of the asset to calculate the Average price over a specified time period. If we set the MA length as 50, it will count the data point for the last 50 days and will calculate the average price of the asset.
In the above screen short, we have added the MA which is moving on the chart showing the market trend. When the MA is above the price, it show that there is downtrend. When the MA is below the price, it indicate that there is uptrend.
Question 2
What are Different types of Moving Average
There are different types of the moving average which differentiate with other another on the base of the parameters which they use while calculating the MA. The below are the three most common and frequently used MA types.
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Weighted Moving Average (WMA)
Simple Moving Average
The simple moving average (SMA) as it name refer, is the most simplest type of the moving average. It is calculated in so simple way. The Average price of the asset over a specified type period is taken into account while calculating the SMA. This MA is represented in form of a line which is plotted as the price move on the chart. The line is plotted with the fluctuation of the price.
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The market data of an asset is displayed as a dynamic line which is plotted with the movement of the price on the chart. This type of the Moving Average help the traders to identify the market trend. This also help the investors to identify the average price of the asset over a specified time period. This type of the MA act slowly to the change in the price.
SMA = (A1 + A2 + A3 + A4........+An) / n
- A = is the average price of the asset over specified time period.
- n= number of the period.
Exponential Moving Average
Exponential Moving Average is also a popular and well known trend based indicator which is use worldwide to identify the market trend. This indicator was introduced to solve the LAG in the MA. The high weight is given to the price data point that occurred at the same time. In the simple MA, we face the problem of lagging. The MA is lagging indicator where the produce the late signals.
But the EMA has solved that lagging problem of MA and does not delay in producing the signals. When the EMA line move above the price on the chart, it produce the bearish signal. The exit signals are also produce when the price is trading below the EMA line. When the EMA line move below the price on the chart, it produce the bullish signal. The entry signals are also produce when the price is trading above the EMA line. When the EMA lose cross the above and below the price, it produce the trend reversal signals.
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This is very useful for the short term traders. This was introduced to produce the faster signals on the price movement. They can get the quick information about the market and can trade successfully. The SMA lag behind price and produce the late signals. This has been cover up by the EMA. The EMA and SMA when combined, produced the best trading signals.
EMA = [ Cp × (s/1+n)] + EMAprev × [1 - (s/1 + n)]
Cp = Current price of the asset
EMAprev = EMA of the previous dat
S =Smoothing factor
N = Number of Period
Weighted Moving Average
In the previous types, we have studied that the EMA and SMA consider the the price data of the previous day more important. The WMA is different from those types because this MA consider the current price day more important and weighted than the previous day price data. The WMA give more weight on the current day price. It react to the price action more faster. The most fast signals are produced which help the traders to get the quick signals and then they can take the trading decisions more quickly at best trading spots.
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It react fast to the small movement of the price. That's why it is very useful and helpful for the short term traders. They can use it to get the high profit as this react more fast on the small changes in the asset's price.
WMA = (P1 × n + P2 × (n-1) + P3 × (n-2) +.......Pn)/ [ n × (n+1)/2]
n = Number of Period
p= Price
Difference Between EMA, SMA and WMA
| SMA | EMA | WMA |
|---|---|---|
| The Average price of the asset over a specified period of time is consider for calculation of SMA. | The Current price of the assets is use to calculate the EMA. | The most recent price of the asset is consider more important in the WMA. The most recent assets price is use for calculating the WMA. |
| The SMA is more suitable for the long term traders. The traders who have plan the long term trading should go for the SMA because it spot the long term trends by considering the average asset's price. | It react faster to the price change, so it is best for short term traders. | It focus on the most recent price and act so fastly on the small changes in the price. SO it is best for short term traders. |
| The SMA length should be high to get the more appropriate and accurate results. It reliability is seen in the high time frame values. | This indicator give importance to the recent data so the short length will go best to get the more appropriate and accurate results.
It is reliable with short time frame and low value
| This indicator work best for both short and long lengths. It give weight to the recent values and produce more accurate results for both short and long values. So best for both short time frame and long time frame |
| SMA has lagging nature. It produce the late signals. | EMA react fastly to the price changes. | It consider the recent data more important and react very fastly on the little changes in the price. |
Question 3.
Identify Entry and Exit Points Using Moving Average. (Demonstrate with Screenshots)
The Moving average is very helpful and useful indicator to identify the market trend. The traders can use it to identify the trend reversal. Not just this, but we can also identify the best entry and exit spots using the MA. When we combine the SMA, WMA and EMA, we get more appropriate and best trading signal.
In the below screen short, we have combined all three MAs which are reacting to the changes in the price differently. We can see that the WMA is closer to the price because it react to the price more fastly. It react even to the small changes in the price . The SMA is more closer than the EMA. Then if we look at the EMA. it is closer to the price as compare to the SMA. The SMA is far from price.
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To obtain the best entry and exit spots, we have combined the EMA and SMA. The SMA work well in the long term time frame. I have set the length of SMA as 50. The EMA work well in the short term time frame. It give weight to the current day value and react fastly to the price change. So its reliability is in the short term time frames. I have set the length of EMA as 20.
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The market price is moving above the SMA which indicate that the market is in uptrend. This mean that demand is higher than the supply. The buying pressure is high as compare to the selling pressure. The buyers are in control. We can also see that the EMA is serving as support because whenever the price hit the EMA, it bounce back to upward.
- Buy Opportunity
In the below screen short, i have added the SMA with length 50. The market was firstly in downtrend. There were the downward movement of the price. The price was trending downward while forming the lower low. Each low was lower than previous low. Then the price stop moving downward and start moving upward. The price fail to form low lower than previous low and start rising upward. Then it break the MA and start moving in upward direction. Then a bullish candle appear close to the MA. This is best buying spot. We should wait until the price bounce back to the MA and then should execute the buy order.
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- Selling Spot
In the below screen short, i have added the SMA with length 50. The market was firstly in uptrend. There were the upward movement of the price. The price was trending upward while forming the higher high Each high was higher than previous high.. Then the price stop moving upward and start moving downward. The price fail to form higher high than previous high and start declining downward. Then it break the MA and start moving in downward direction. This is best selling spot.
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Question 4.
What do you understand by Crossover? Explain in Your Own Words.
Moving average crossover is a very useful technique to trade successfully. The traders can use it to get the more accurate and appropriate signals. They can get the best entry and exit spots and then can earn high profit.
The Moving average cross over is a combination of two MA. The traders combine the two MA to get the excellent results. The crossover of these two MA produce the best entry and exit spots and traders can use them to trade successfully in profit.
When the two MA cross each other downward, it produce the buy signals. When the two MA cross each other upside, it produce the best buy opportunity. We can combine EMA with SMA, SMA with WMA, WMA with WMA, SMA with SMA, EMA with EMA or EMA with WMA. The combination of the MA is according to our desire. We can combine Any two MAs.
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In the below screen short, we have combines the SMA with EMA. The length of SMA is set as 100 and the length of EMA is set as 20. The SMA is is slow MA because it react to the price very slowly. This MA need a lot of the price data to calculate the average price. It is the longer MA which react to the price very slowly. It lag behind the price because it use a lot of the previous data for calculating the Average price that's why it produce the late signals.
On the other hand, the EMA is the fast MA which react to the price very quickly. The EMA use the recent price value for calculation and react the price fastly. It produce very fast results. The react to even small price changes and produce the signals for the traders to trade successfully. When these two MA cross each other, a trade signal is produce.
- When the faster MA cross the slower MA while moving upward direction, the Buy signals are produce.
- When the faster MA cross the slow MA while moving downward direction, the Sell signals are produce.
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Question 5.
Explain The Limitations of Moving Average.
- The MA is very useful and beneficial indicator which help to identify the market current trend and trend reversal points. It also produce the best entry and exit spots. But no technical indicator is 100% accurate. The technical indicator may produce the false signals. The MA is also a technical indicator which cannot produce the 100% accurate results. This indicator sometime produce the false result.
- We need to combine the MA with some other technical indicator in order to get the more accurate results. Using it alone is not recommended.
- This indicator use only the historical price data. This do not focus on the other parameters which can effect the asset's price.
- This indicator has the lagging nature. The MA lag behind price. It produce the late signals.
- Because of having lagging nature, it is very difficult for the traders to get the best entry and exit spots.
- It is best for trending market but in case of the ranging market, the MA fail to give the best results.
- In the highly volatile market, the MA produce very false results because of having the lagging nature.
Conclusion
The Moving Average is a technical indicator which is use to analyze the crypto market. This indicator helps the traders to analyze the market and take the best trading decisions. This is a trend based indicator which is to to identify the market trend. This indicator also help the traders to identify the trend reversal point. This also give the traders best entry and exit spots. When the price of the coin break the Moving average line upward or downward, the trend reversal occur.
There are multiple types of MA. When we combine any two MAs in cross over technique, we get more reliable results. The MA is also a technical indicator which cannot produce the 100% accurate results. This indicator sometime produce the false result. Using the MA alone is not recommended. We should use it while combining with other technical indicator in order to get more accurate results.
Thanks to @shemul21