Crypto and other markets such as Forex are highly volatile. The inconsistencies make it harder to predict the probable position of an asset in the future. However, to have a chance of making the correct guesses, moving averages and other indicators help create a bounded area that will most likely become part of the price action.
Calculation of moving averages (MAs) comes in two ways. One method involves a basic summation of the prices of the assets and taking a nine or 200-period moving average. The other method involves the calculation of the moving averages exponentially. However, in both the methods mentioned above, the moving averages will create many data points that help an investor make a trading decision.
Beyond knowing how to calculate MAs, understanding what is slippage in cryptocurrency can help make better moves in the crypto market.
First Steps in Calculating the Moving Averages
Bitcoin charts or any crypto charts have many data points to discern before applying the moving average (MA). The basics of the MA is that when a 20-period MA is applied in the charts by picking the closing points of some assets, it means that the indicator considers 20 days till the current day’s price action.
When applying the MA on a Bitcoin chart for 20 days, the trader should note the candle-closing price of each day in the period and then create an average value by dividing the total by 20.
The average figure calculated for the 20 days is a small snapshot of a daily price action also in the same period.
Periods are little snapshots of the price actions taken over a duration of time. For example, a 20 MA will slice a 5-minute chart 20 times. Each slice is the behavior of the trend line in that small micro period in the five minutes.
Which Is the Best MA to Apply In a Crypto Chart
Depending on the time covered by the MA, longer MAs help cover slower periods that have higher lags. Therefore, when a trader is considering a larger period, which represents more price fluctuations, a 200-day moving average is the best to consider.
The moving averages can drop to about 9 days, which helps cover insignificant price actions that have fewer price swings. 9 day MAs are suitable for daily activities in the crypto markets.
How does the 200 MA Work?
The 200 MA works for long holders in the crypto investment domain. It represents a substantial period that has more price swings, which spark a sizable lag factor. The calculations for a 200-day MA follow a similar trend to other smaller MAs, where the trader will consider the closing price of a crypto asset in 200 days, then average that with the total number of days in consideration. The 200 MA fluctuates and moves during calculations because the days increase while some disappear in the computations.
What Are Some Uses of 200-Day MA?
Beyond trading, the 200 MA can help create a snapshot of the market for an investor who wants to take a new position. A brief analysis of the 200-day MA can tell a trader whether an asset is in a bearish run or a bullish run.
Small period MAs using shorter candlesticks have little data that they can present to a long-term crypto holder. However, shorter MAs are helpful for day traders who only consider a 7-day period that precedes the price action or something less than two weeks.
Longer MAs can also help a trader find the perfect turns in the price action of an asset to take a position. For example, a seven-day moving average will probably bounce at a point on the 200-day moving average. The bouncing point will help make the perfect decision for taking a new position in the asset market.
Examples of Crosses in the 200 MA Lines
When a trader combines the short MAs and longer MAs in a crypto chart. The two lines will probably cross together to help an investor decide. The death cross refers to a point where a 50 MA cuts the 200 MA in a downward trend. Such action shows a bear momentum in the crypto markets. Alternatively, when the 50 MA crosses the 200 MA in an upward motion, the market is rife with buying or bullish momentum.
Trading indicators help provide good points for a day trader and a long-term holder to enter a good position in the crypto markets. The 9-day MA helps shed areas that are suitable for day trading and other short trading periods. However, the 200 MA is good enough for long holders who hold crypto commodities for a long time.