Cryptocurrencies took a big hit during crypto winter. This caused quite a few folks to leave cryptocurrencies behind as an investment and look elsewhere. However, as we have written, you can think of bear markets as a key to future wealth. Cryptocurrencies have recovered a bit since the end of last year. The key to making a long term profit going forward is to accurately predict which tokens will gain in value over the coming months and years. One tool that investors commonly use is the moving average. Do moving averages help in crypto trading?
What Is a Moving Average?
Market prices tend to fluctuate up and down a lot. This is especially true with cryptocurrencies. Because of the continuing static of up and down movement it can be difficult to identify evolving trends. What a simple moving average does is smooth out the constant up and down oscillations so that trends are easier to see. A simple moving average is the average high, low, average, opening, or closing price of a stock over a given time period. Common moving averages are fifty, one hundred, and two hundred days. Additionally, there are exponential moving averages that give more emphasis to recent price movements and even double exponential moving averages. For crypto investors looking to identify what the market is doing over the longer term a simple moving average is best. Crypto traders who jump in and out of the market will often be better served by an exponential moving average.
Moving Average as a Cure for Bitcoin Wash Trading
Using a moving average is not going to make Bitcoin wash trading go away. But it will help you not be fooled by this sort of market manipulation. The point of wash trading and similar market scams is to drive apparent trading volume up and fool other traders into thinking that a rally is beginning. If you are in crypto for long term profits, you can generally ignore the short term ups and downs. What you want is reassurance that the market is indeed heading up over time. That is what a moving average will show you.
Does a Moving Average Help a Crypto Trader?
When trading crypto tokens, a trader needs to know if they are in a trend or not. They also need to know the likelihood of a trend reversing. Moving averages can help in both cases. First of all, you can use whatever moving average fits the time frame of your trading. While a 200-day moving average may suit a long-term investor, a trader can use moving averages of a day, five days, ten days, and so forth. In each case the moving average helps remove the confusion of market fluctuations.
The Golden Cross in Crypto Trading
It is always a good idea to use two moving averages when trading crypto. The shorter time frame will show trends more quickly than the longer one does. A strong upward trend will show the two moving averages spreading apart as they rise. A short-term moving average may be lower than the longer-term moving average. Then it begins to rise and breaks through the long-term average. This is called a golden cross. It is a very strong indicator that a major upward trend is likely. When the opposite situation occurs it is called a death cross and indicates that the market is set to head down with force. These provide excellent opportunities for crypto trading profits.
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