Moving Averages and Their Use
Technical analysis is not a new thing to us it is a thing existing from the old time when there is only traditional means of investment market is available and crypto is not invented. But after it it is used in crypto also. In TA or technical analysis people use many types of indicators to make the most correct prediction to reach their goal but among the all types of indicators some indicators are very popular and commonly used among all traders.
One of them is MA or Moving Averages and it further divided into different types but the purpose of MA is one and that is to get clarity on the chart and helps in making decisions while trading.
Types of Moving Averages
Well as I said earlier MA is also divided in different types bilut majorly it classified into two types such as SMA(Simple Moving Averages or EMA(Expontial Moving Averages) and these both moving averages are widely used in all types trade whether it is short-term, long-term or swing trade.
The Simple Moving Average
The Simple Moving Average (SMA) calculates the average price of a security over a set time period by considering only the most recent data and disregarding older data. Unlike a basic average, SMA treats all data equally, which some traders find limiting. To address this, the Exponential Moving Average (EMA) gives more weight to recent data, providing a solution for those who believe newer information is more relevant in technical analysis.
The Exponential Moving Average
EMAs and SMAs both analyze past price changes, but EMAs are more complex as they give greater importance to recent prices. While both averages are valuable, EMAs are quicker to respond to sudden price shifts and reversals. Traders, especially those in short-term trading, often prefer EMAs for their responsiveness. It's crucial for traders or investors to select the moving average type that aligns with their strategies and goals, adjusting settings accordingly.
How To Use Moving Averages
Specifically traders use 50 and 200 day moving averages and some use it with custom day range but from my point the combination of 50 and 200 day MA is good. Understanding them is much easier also if the MA are going upwards then it means a uptrend and if they are going downwards then it indicates a downtrend.
But if we see the crossover between them then it represents a strong signal for example if the 50 MA crossover the 200 MA from below then it forms a golden cross which means market will go up soon and if the 50 MA crossover the 200 from up then it forms a death cross which means the market will fall soon.
Conclusion |
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Moving Averages are one of the commonly and widely used indicators which are also give very important signals but sometimes it also can gave fake signals and users get trapped due to it so, it is always a clever thing to add some additional indicators with it to get the best out of it.
This is a very nice post Vai 👍