Key Takeaways: Bitcoin Moving Average
- Role of technical analysis in price determination
- Definition of moving average
- What does the number in moving average signify?
- Different moving averages based on priorities
- How do MA crossovers work?
- 200-day moving average as a reliable long-term indicator
- The fallibility of moving averages and why they are better used with other indicators
Making money in an inherently volatile crypto space requires a helping hand. As much as knowing about the cryptocurrency fundamentals covers you for long-term investments, credible technical insights are necessary to be on the greener side of short and mid-term trades.
But, how can we zero in on the right technical tools for the job when the crypto market is full of momentum, lagging price, and standard indicators? And if you are starting out, try out the Moving Averages to keep the analysis simple, rewarding, and relatively accurate.
Bitcoin Moving Average (MA) Strategy: The Basics
If you plan on investing or trading in Bitcoin, there are several deployable tools to increase the chances of making a profit. Although crypto trading and technical strategies are universal for any asset class, finding the accurate price bend using moving averages is the most efficient and straightforward approach.
The Bitcoin moving average strategy is all about finding a line-based representation of the average trade closing prices. And that too in a given time frame. As historical, lagging indicators, Bitcoin moving averages aim at smoothing time-bound price action. And this eventually helps you find the perfect entry and exit points.
Put simply; a 10-day moving average is the progressive average of closing prices for each day, calculated simply by adding the closing prices and dividing it by 10.
Is that all! Not exactly as any moving average indicator first needs to focus on the timeframe on analysis. For instance, if the Bitcoin moving average assumes a period of 50 and that too on an hourly chart, you would get the average data of the past 50 trading hours. On daily and weekly charts, the averaging time becomes 50 days and 50 weeks, respectively. You can convert BTC to INR here.
Bitcoin Moving Average: Types and Terminologies
Much like any other form of mathematical modeling, even moving averages are broadly segregated into four types:
SMA (Simple Moving Average)
The simple moving average is one indicator that only averages out the asset closing price within a time frame. And just so you know, SMAs are fairly accurate and the most widely used as lagging indicators. And they are perfect for crossovers, standalone analysis, and dynamic level monitoring (monitoring the market in real-time).
EMA (Exponential Moving Average)
The exponential moving average is a tad more complicated and ensures that you have a more compounding sort of figure at your disposal. The idea here is to pad up any previous value with a certain portion of the existing closing price, thereby making the indicator more accurate and accurately responsive to recent price changes.
EMAs can be used for monitoring two and 3-EMA crossovers and MACDs (Moving Average Convergence Divergence) whilst helping you take better long-term Bitcoin investment calls.
SMMA (Smoothed Moving Average)
Smoothed moving average takes multiple moving averages into account and averages out the insights to improve chart reading accuracy.
LWMA (Linear Weighted Moving Average)
The linear weighted moving average is more inclined towards recent price points. This indicator determines pointers by multiplying the closing prices within the chosen timeframe by a relevant weight coefficient, which might change depending on the market volatility.
Now that we are aware of the basic types of moving averages, here are some of the important terminologies:
A lot can be inferred by looking at the slope of a moving average indicator. If the slope of a MA line is upwards, an uptrend might be imminent. Downward slopes primarily represent downtrends. However, trend transitions cannot be determined if you are only using one MA indicator.
Unlike a standalone MA line, MA crosses are better trading and investing indicators. While you are free to use multiple MAs and determine the crosses for identifying entry and exit points, always look for how the Short-timeframe MA interacts with the Long-timeframe moving average.
If the Short MA crosses above the long one, you can consider it as a bullish signal. And eventually, contemplate buying bitcoin. For the short MA cross below, you can expect prices to drop.
How to Use a Moving Average Indicator for Investing Better?
Finding the best moving average indicator is strictly goal-dependent. While a 9-period SMA seems like the best moving average for day trading, things get a bit more explanatory for long-term positions. Here are some of the best ways to implement moving average indicators, regardless of the type, for finding the best entry and exit points for Bitcoin investment:
Now that we have already discussed crosses, it’s evident that this price and trend analyzing strategy requires plotting more than one moving average line. A good way to start is by following a standard crossover strategy using a 50 and 200-period moving average. Suppose you find EMAs more reliable as compared to SMAs. In that case, you can follow the MACD or Moving Average Convergence-Divergence Strategy or even a 3 EMA crossover strategy to find long and short-term entry and exit points with accuracy.
Multiple MA Strategy
Wait, are we still talking crossovers here! No, the multiple MA strategy isn’t about crossovers, at least not yet. The initial impression projected by the multiple MAs is a good uptrend or downtrend indicator to the naked eye. This method is primarily used for identifying the market trend, whereas the crossovers can then help you take calls at specific entry and exit points.
Single MA Strategy
If the multiple MA shenanigans feel way too much to decipher, you can even opt for a single MA line to make Bitcoins entries and exits at dynamic support and resistance levels. In a trending market, a standard 50-period EMA seems like a more accurate mid-term tool. The points where the Bitcoin bounces off after going down or takes support, seem like effective entry points. In contrast, in an upward moving market, the dynamic resistance points or the levels that Bitcoins fail to breach are good for exiting.
200 MA Strategy
If you are planning to build a Bitcoin investment portfolio, it is essential to enter at the right price. Also, unlike traders, investors can do without losing sleep over the right entry points. Still, as Bitcoin hails from a pretty cryptic and volatile space, using the 200 day SMA to identify a bullish trend before entering seems like a good approach.
Also, if you are only into long-term holding, the 200-day SMA is quite safe. And also one of the more reliable historical trading indicators in play.
Can a Bitcoin Moving Average Indicator Fail?
Trust me; moving average indicators are as effective as they are diverse. Still, they may not give out correct insights in a range-bound market, and that too if you plan on using a single MA indicator for the tasks. Also, moving average lines can be prone to whiplashes, which are flat, oscillating zones that can hardly be identified for entries and exits.
However, crossover strategies are expected to work more often than not. More so, if you consider using the same alongside the RSI indicator and Bollinger bands to find demand and supply zones to perfection.
FAQs on Moving Average
Q1. Which are the best moving averages for Bitcoin?
A1. For Bitcoin, you must rely on 50-day and 200-day SMAs to ensure crossovers give the best entry and exit points. Still, if you want to keep the analysis simple, a 200-day Exponential Moving Average is an excellent way to understand long-term price movements better.
Q2. What is the Bitcoin moving average?
A2. For starters, Bitcoin moving average is a reliable mathematical statistic or indicator. And, it is capable of smoothing out the closing prices over a given period. Finally, the approach can create a series of average points, identified as a single yet incoherent line.
Q3. How is the Bitcoin moving average calculated?
A3. Firstly, you can simply calculate Bitcoin Moving Average by averaging the closing price for each period within the proposed time frame. Secondly, based on the complexity of the calculations, you can use SMA for standard averaging and EMA for weighted averaging.
ex: Bitcoin Moving Average = Closing Period/Proposed Time Frame
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
Table of content
Subscribe to Our Newsletter with exclusive content.