Trading the crypto market can be challenging and requires more than just buying and selling crypto assets; if you want to become a successful investor and trader in this field, it takes skill, patience and psychology to stay on top. Investors and traders are always looking for ways to stay profitable in cryptocurrencies by adopting different trading strategies, using indicators, oscillators and chart patterns to stay ahead and stay profitable in bull and bear markets. Studies have shown that more than 70% of the cryptocurrency market moves, while the remaining percentage allows traders to spot trends. Let’s discuss the Exponential Moving Average (EMA), one of the indicators widely used by traders and investors to stay profitable and follow massive trends in the crypto market.
What is an Exponential Moving Average (EMA)
The Exponential Moving Average is a type of moving average tool used by many traders and investors in technical analysis of crypto assets to detect potential buy and sell areas and identify the current trend of the asset.
There are two common moving averages: the simple moving average (SMA) and the exponential moving average (EMA). Most traders prefer using the EMA as it filters out the price action and volatility that comes with trading the crypto market and gives traders a more realistic value than the SMA by placing more weight on current price data.
Trading the EMA gives the trader more opportunities. It helps you identify dynamic support and resistance and allows you as a trader to enter and exit trades when the trend turns against your trade.
As a trader, you don’t have to start learning the formulas and how the exponential moving average was achieved, all you have to do is use it on tradingview.com to analyze your crypto assets.
How to use EMA and ride massive trends
Commonly used exponential moving averages are the 50 and 200 day EMA for long-term traders to spot trends and follow early trends based on high timeframes. For short-term trading, traders use the 8 and 20-day EMA to identify trends, entries, exits and potential price reversals.
Example of 50 and 200 day EMA
From the chart above, the price of Bitcoin/US Dollar (BTCUSD) is trading below the 50 and 200 EMA, indicating a bearish price movement, with the 50 and 200 day EMA acting as resistance for the price of Bitcoin (BTC), preventing the price from going higher. The 50 EMA reacts more quickly to a price change, so a break and close above the 50 and 200 EMA indicates a potential bearish to bullish trend change.
Example of 8 and 20 day exponential moving average
The 8- and 20-day exponential moving averages are used for short-term trades and can be used to detect short-term trend changes. The 8-day EMA reacts faster to change; as such, a breakout from the bottom could indicate a potential price change from a downtrend to an uptrend. A price close above the 8 and 20 EMA could indicate a potential bearish to bullish price change.
For better confirmation, it would be ideal to trade this indicator with other trading strategies and chart patterns such as descending triangle from the above image for better trading confirmation and profitability.
Featured Image From Investopedia, Charts From Tradingview