Using Moving Averages to Predict Trends
Speaking as a budding investor to any other potential new ones out there, as I was playing around with some cryptocurrency day trading and doing some research, there was some trial and error and some interesting pieces of knowledge I picked up. Considering the breadth of content on FreeStartupKits, let’s delve into the beginning of technical indicators for candlestick charts that are often on many trading websites. In a market of emotion, the more data driven we are, the better.
Also, given how chaotic the cryptocurrency market is for example, this is just one of the mountain of different ways you can use to shine your way through the fog of war called “trading” — particularly with cryptocurrency. Remember that there are some wins and losses, but this is a tool for the kit.
Many of the following indicators described in this article would be usable in whatever charting or trading website and would have to be found in the UI of each website.
Moving Averages
Moving averages (MAs) are used to gauge the direction of the current trend. Every type of moving average is basically an average of previous data points on the candle stick diagram.
The more they point in one direction, the stronger the trend.
The shorter the time span that is used to build the average, the more erratic it’ll be, and vice versa. Depending on your trading strategy. The best outcomes will come through research, experience, intuition and your short or long term goals.
When they crossover, this is a potential sign of a changing trend.
As pictured above, when the longer time span MA lines (orange is the 50 day MA) moves higher than the short time span MAs (the purple 7 day MA), that may be a sign of an upcoming bearish (downward) trend.
The opposite is true as well.
Online Trading Concepts puts it very clearly (MAs are also sometimes called SMAs)
Like the Binance diagram with 3 moving point averages,
The 3 Simple Moving Average method could be interpreted as follows:
The first crossover of the quickest SMA (in the example above, the 10-day SMA) across the next quickest SMA (20-day SMA) acts as a warning that prices might be reversing trend; however, usually a trader would not place an actual buy or sell order then.
Thereafter, the second crossover of the quickest SMA (10-day) and the slowest SMA (50-day), might trigger a trader to buy or sell.
There are numerous variants and methodologies for using the 3 Simple Moving Average crossover method, some are provided below:
A more conservative approach might be to wait until the middle SMA (20-day) crosses over the slower SMA (50-day); but this is basically a two SMA crossover technique, not a three SMA technique.
A trader might consider a money management technique of buying a half size when the quick SMA crosses over the next quickest SMA and then enter the other half when the quick SMA crosses over the slower SMA.
Instead of halves, buy or sell one-third of a position when the quick SMA crosses over the next quickest SMA, another third when the quick SMA crosses over the slow SMA, and the last third when the second quickest SMA crosses over the slow SMA.
Moving Average Ribbons
As Investopedia says, if a few moving point averages are useful, imagine adding a spectrum of these can add confirmation.
Some say that the positive area between shorter MAs and longer ones can represent the dimension of “optimism”.
Although the MA is the most commonly used technical indictor, there are other alternatives that are similar.
Exponential Moving Average (EMA)
The same as MA’s except they weigh current prices more than previous prices and have the potential to earlier indicate a trend. In turn, they are more susceptible than MA’s to trigger false flags (whipsaws).
Weighted Moving Average (WMA)
Very similar to exponential moving averages. This one also emphasizes more recent price changes and can earlier detect trends. The difference is the formula. The WMA formula consistently decreases the importance of older prices while EMA exponentially decreases old price importance (hence the name difference). Here’s a great Q/A on this. At a glance, weighted moving average may be used in situations where importance in price changes is more uniform throughout.
Unfortunately Binance doesn’t have the WMA and I’m still trying to find a close cousin. Let us know if you know of one.
Adaptive Moving Average (AMA)
Or Kaufman’s Adaptive Moving Average (KAMA)
The AMA’s sensitivity increases in periods when the price is consistently moving in a certain direction. Inversely, the AMA becomes less sensitive to price movement when price is volatile. The purpose of this is to filter out market noise.
This must go well with cryptocurrency markets considering how chaotic they are.
The newer the stock or cryptocurrency, the less valuable MA’s are well, because the commodity has been out for less time, so the averages aren’t well established.
Tradingview.com is a great website to view some of the best diagrams on stocks and cryptocurrencies I’ve seen. I trade on Binance, click here to join (and get a referral bonus)
After I learned all this stuff, I figured I’d sell some coin because I’m at an EMA bearish crossover right now that may begin a 4 hour valley. We’ll see if it worked!
Another example,
Looks like probably a 2 hour trend is happening right now for the LINK coin. I’m buying and flipping accordingly.
[update 4 hours later]
The coin went up by 12%, I saw the EMA lines pinching, so I pulled out and sold (seen below).
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Author: Natu Myers
(Website: Natumyers.com) (Book: Natubook.com)
Natu is a cryptocurrency investor and software engineer who is experienced in building large scale applications. He built Innovator.Supply, an HR recruiting software for VR, AR, and chatbot enthusiasts. This was followed his other service, Hypetroop Market. He has a fitness page on Instagram. Stemming from his time at Queen’s, he was a defensive lineman on the Queen’s Gaels football team. Being a multipotentialite, he finished a business incubator program after graduating, launched his own album on iTunes, and he stays up to date industry-penetrating software startups and crytocurrency investment methods while gaining IT experience.
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Disclaimer: This is not financial advice; you are responsible for your own money. All my resources are to be seen as research and conjecture. I do not claim having done any of it with my personal assets in the past or present.
