What is exponential moving average or EMA in crypto trading? According to Investopedia, it is a technical chart indicator that shows how the price of a security (such as bitcoin) changed over time. The EMA is a sort of weighted moving average (WMA) that gives recent price data more weight or importance. The exponential moving average (EMA), like the simple moving average (SMA), is used to study price movements over time.
The only thing to remember is that EMA is more sensitive to front-end prices and their average. In other words, in EMA, recent prices are given a higher weight in the computation than earlier prices, whereas in SMA, all values from the previous set of days are regarded equally. Which is the superior option? It all depends on how you trade. Others choose EMA over SMA because they believe it is more precise.
After you have grasped the principle, you can look at EMA crossover trading tactics such as long and short positions, stop loss, and take profit. Remember, complex trading strategies are not always the best. Sometimes all we need to do is keep things simple. If you know how to utilise it, it will function effectively. Keep in mind that EMA is an indicator focused on past prices; thus, it is not giving you real-time signals. You cannot use it as an advanced warning indicator because it only confirms changes in trends.
Moving averages, according to Coindesk, are significant for determining the direction and intensity of a trend since they gather specific price data points over a specified period and update the average price as it moves across the chart. The triple moving average might assist us in determining the market’s long-term or short-term direction. Furthermore, in a short-term trend, we can choose whether to trade with or against the trend. It is important to remember that the moving average is not a perfect indicator.
9-period EMA, 21-period EMA, and 55 or 50-period EMA make up the triple moving average. The 55-period EMA is considered a longer-term trend direction indicator. We may claim that we are in an upward market when the 55-EMA is below the 9 and 21-period. On the other hand, we may expect the market is a downtrend when the 55-EMA is above the two short-term moving averages. In an uptrend case, the 21 EMA acts as a medium-term trend indicator. If the market is rising in a medium trend, the 21 EMA should be below the 9 EMA. If it falls, the 21 EMA will be higher than the 9 EMA period. It sounds complicated, right? But the good thing is that crypto platforms nowadays auto-generate lines for the EMA, so you do not need to manually compute and plot it.
How about in a downtrend case? What can we observe in the chart? The 9-EMA period crosses under the 21-period and is commonly perceived as a crossover. This situation happens at 55-EMA as well, although not as frequently. When the 9-EMA crosses the 21-EMA when both are above the 55-EMA, this occurs. This occurrence could signal the start of an uptrend, indicating that now is the best time to invest in cryptocurrency via a regulated platform like Bitcoin Revolution. Furthermore, a downtrend occurs when the 9-EMA crosses the 21-EMA, both of which are already below the 55-EMA. We can now look for a selling opportunity.
We know the market is trading in a range when the indicators are unpredictable. There is momentum entering the market when the faster moving average moves away from the other with its moving average. We can notice a trending market when the 9 and 21 EMA crossover and their gap move away from each other. When all three moving averages are aligned, a strong trend is in play. These factors will help us determine the trading strategy we will employ to enter the market.
Before diving into the world of the crypto market, one should conduct thorough research first. The internet has tons of advice from anonymous people, so you must be careful of what you absorb. EMA is just one of the indicators in the list as far as technical analysis is concerned. Some traders use it as one of their primary indicators, but others prefer to use many indicators. However, it is essential to remember that too many of these might lead to “analytical paralysis.” For some experienced traders, the most strategic move is to consult professional crypto traders, as for them, it lowers the risk of making awful decisions in trading.