Hello everyone. This is @ahmadchemist737. This week, professor @shemul21 has taught us " Crypto trading using Moving average ". After reading the lecture carefully, i am going to do my homework task.
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Question 1. Explain Your Understanding of Moving Average.
Trading and the crypto world is getting popularity very rapidly and the number of the investors is increasing day by day. There are a lot of the investors in the market who perform the trading on the daily base and buy and sell the coin. But we cannot place the buy and sell orders blindly. Proper research and analysis is require to safe from risk and to trade with high profit. The traders use the strategies and indicators to analyze the market.
There are multiple ways to analyze the market. The traders can analyze the market through fundamental or technical analysis. There are a lot of the technical tools and indicator in the market which the traders can use to analyze the market according to their need and requirement. Today, we are going to discuss the Moving Average indicator.
The moving average indicator is a technical tool which is very popular among the traders in the crypto market to analyze the market efficiently. This tool work to identify the market trend. The traders can determine easily the direction of the market and then can decide what to do next in the market. This is very simple to read and easy to understand. This indicator work for the traders to understand the market structure and to predict the market future. This indicator produce the signal about the market trend. The traders get to know whether the price of the coin is rising or declining.
This indicator not just use to identify the indicator but also produce a lot of other important trading decisions. The traders use the Moving average indicator to identify the market trend and also identify the trend reversal points. When the market trend change from one to another(bearish to bullish or bullish to bearish), the important trading spots are created for the traders to take the important trading steps and to earn high profit.
The trend reversal points are very important and useful for the traders. The moving average help the traders to identify the trend reversal spots. This indicator also produce the signals for the best entry and exit points. The traders can identify the best point to enter into the market and to exit from the market. They can use these price points to earn the high profit and safe from risk.
The traders use this indicator to enter into the market at the best time and earn the high profit. This is beneficial for the long and short term traders. The short term traders use it according to their trading plans and strategies. They can get the bets trading signals using the MA. The long term traders can also use the MA to get the best trading signals for their trading plans and strategies.
The need is to set the length of the MA indicator according to the trading plans. The short and long term traders set the length of MA according to their own trading system and planning. This is equally useful for the beginners to analyze the market because it is very easy to understand. This only have a single line which oscillate with the price movement on the chart. When the line move above the price on the chart, it indicate that the demand is high and supply is low. The price is rising upward and market is in bullish season. When the line move below the price on the chart, it indicate that the demand is low and supply is high. The price is falling downward and market is in bearish season.
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In the above chart, we have added the MA which is moving below the line indicating that there is the bullish trend. When the line move below the price on the chart, it show that there is the uptrend in the market.
Then MA start moving above the line indicating that there is the bearish trend. When the line move above the price on the chart, it show that there is the downtrend in the market.
Question 2. What Are The Different Types of Moving Average? Differentiate Between Them.
The Moving average is very useful and popular indicator which is use to analyze the market. There are different types of the MA and the traders can choose which go best for the trading strategy. Here i am going to discuss the three main and most popular type of the MA
- Simple Moving Average
- Exponential Moving Average
- Weighted Moving Average
Simple Moving Average
The simple moving average is the most simple and common type of the moving average. This type of the moving average is represented just in a form of a single line which move ups and down with the movement of price. This type of the Moving average is very popular among the traders to identify the market trend. They can use this line to determine in which direction the market is moving.
If the line is moving above the price on the chart, this indicate that there is downtrend and price is falling down. When the line is moving below the price on the chart, this show that there is uptrend in the market and price is rising. In this way, this indicator helps the traders to determine the market trend. This also help to identify the market trend reversal points. The market reversal points are very beneficial for the traders to take the important trading decisions in order to get the high benefit.
This indicator calculate the average asset's price using the historical price data of the coin. This indicator is very easy and simple to understand but no indicator is perfect. There are some prons of the MA. The major one is that MA has the lagging nature. This indicator lag behind the price.
This mean that the signals are produce when the coin has already moved in a certain direction. This indicator produced the late signals. The traders cannot identify and analyze the market moves early. When the market actually start moving in a certain direction, the indicator produced the signals then. These late signals are not that much useful for the traders and they cannot take the important trading decisions at more appropriate and the best time because of these late signals.
This indicator cannot work good in the high volatile markets. When there is high volatility, we should not use the SMA to analyze the market because this indicator cannot produce the best trading signals in such markets.
This indicator can be calculated using the following formula
- Simple Moving Average = (A1 + A2 + A3 + A$ = A5 ...+An) / n
- A = Average price in a certain time period
- n = Number of periods considered
Exponential Moving Average
We have studied about the simple moving average in the above section. That indicator is very easy and simple to understand but because of having the lagging nature, the traders do not rely heavily on this indicator. The MA lag behind the price and produce the late signals because of which, the traders sometime cannot take the trading steps at the more appropriate ad best timing. To solve this problem another type of the moving average has been introduced which is known as the exponential moving average.
The exponential moving average is also very common and important type of the MA which the traders use to analyze the crypto market. This indicator do not lag behind the price so is more useful for the traders to analyze the market more accurately. The EMA also represented in form of a single line which more with the movement of price on the chart.
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If the line is moving above the price on the chart, this indicate that there is downtrend and price is falling down. Here the traders should exit from the market. This produce the exit signals. When the line is moving below the price on the chart, this show that there is uptrend in the market and price is rising. This is best entry spot. In this way, this indicator helps the traders to determine the market trend. This also help to identify the market trend reversal points. The market reversal points are very beneficial for the traders to take the important trading decisions in order to get the high benefit.
The EMA can be calculated using the following formula.
- EMA = {Current price x (s/1+n)} + EMA(PD) × [1 - (s/1 + n)
- where PD is the EMA of previous day
Weighted Moving Average.
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The Weighted moving average is also very popular and famous type of the MA which the traders use to get the more accurate trading signals. The traders can trade successfully using the WMA. This indicator give weight to the recent price value more. Thus it react to the price change very fast and produce the early signals so that the traders can get the full benefit of opportunity. This indicator react to even the minor price change. When the price change a little bit, the WMA react and produce the trading signals for the traders.
This indicator can be calculated using the following formula.
- WMA = (P1 × number of period + P2 × (number of period-1) +...P (n)) / [ n × (n+1)/2]
Where
- P= Price
- N= Number of period
Difference Between EMA, SMA and WMA
| SMA | EMA | WMA |
|---|---|---|
| The SMA is the simplest type of the MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots. | EMA is another type of MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots. | This is the third type of the MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots |
| This indicator use the historical price data to calculate the average price of coin. | This indicator use the current price of coin for calculation. | The most recent price of coin is use to calculate the WMA. |
| This indicator is more useful for the long term trading plans. | The EMA is more useful for the short term traders. | The WMA is beneficial for both short and long term traders. |
| This indicator use the high length of the time frame to perform well. | It use the low time frame length to perform well. | It also use the low time frame length to give the best performance |
| This indicator lag behind the price that's why produce the late signals. | This indicator use the today's asset's price and produce the fast signals. | This indicator use the recent price of the coin and produce very fast signals. |
| This indicator do not react to the price change fastly. | This indicator react to the price change fastly. | This indicator react to the price change very fastly and quickly. |
The SMA is the simplest type of the MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots. This indicator lag behind the price and produce the late signals. It use the historical price data for calculation. EMA is another type of MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots.
It use the today's asset's price and produce the fast signals. The EMA produce the fast signals. The most recent price of coin is use to calculate the WMA. The WMA give more weight the the current price of the assets. This indicator react to the price change very fastly and quickly.
Below i have added the WMA, SMA and EMA on a price chart. The SMA is far from the price but EMA is closer to the price of the assets. The WMA is more closer to the price as compare to the EMA.
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Question 3. Identifying Entry and Exit Points Using Moving Average
The traders perform the trading to earn the high profit. They enter into the market at the best entry point to earn high income. They try to exit from the market at best exit spots to safe from risk. To identify the best entry and exit spots, they analyze the market first. There are multiple technical tools to perform the analysis of the crypto market. The traders pick the one more suitable for their trading strategy and according to their needs. Then they perform analysis and get the trading signals.
The most important factor which the traders should consider before taking a single step into the market is identification of the market trend. The traders should identify the market trend before making an entry. They should also be aware of the best entry and exit spots. A lot of other factors are there on which the traders should focus to trade successfully. To analyze the market easily and accurately, the Moving average is very important and useful technical tool.
This indicator is very popular and famous among the traders to analyze the market and to get the best trading signals. This indicator use to identify the market trend. The traders get to know the direction of the market. It also help to get the best entry and exit price points. They use these signals to enter into the market at most appropriate spots to earn the high profit. There are multiple types of the AM which we can use to get the trading signals. But when we combine two MAs, we get the more best results.
We need to combine a short length MA with long length MA to get the best output. Here i have combined the SMA and EMA. The length of the SMA is set as 100 and the EMA is set at the 20 period. The SMA help to identify the market trend. The EMA produce very fast trading signals. Combing these two MAs, we will get the best trading signals.
The Moving average is very useful indicator which help us to trade successfully. This indicator move along the price movement. When the demand get high and supply decrease, The price start rising upward and bullish trend occur in the market. During the bullish trend, the price move above, after making a small higher high, the price bounce back to downward and touch the support level. Then it again push back to upward direction by the buyers. This is the best spot to enter into the market. This produce the buying signals.
In the below chart, i have combined the two MAs. one is EMA and other is SMA. The price was moving below the SMA which indicate that there is downtrend. Then the EMA cross the SMA and start moving above. The price also start moving above the SMA. This is the point when the market enter into the bullish trend.
The buyers push the market upward because of which a higher high was formed but then the sellers entered into the market and drag the price downward. The price declined and hit the support level. Then again the buyers enter into the market and start pushing the price in upward direction. This produce the buy signals. This is best spot for the traders to enter into the market.
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In the below chart, i have combined the two MAs. one is EMA and other is SMA. The price was moving above the SMA which indicate that there is uptrend. Then the EMA cross the SMA and start moving below. The price also start moving below the SMA. This is the point when the market enter into the bearish trend.
The sellers push the market downward because of which a low was formed but then the buyers entered into the market and push the price upward. The price rise up and hit the resistance level. Then again the sellers enter into the market and start pushing the price in downward direction. This produce the sell signals. This is best spot for the traders to exit from the market.
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Question 4- Understanding Moving Average Crossover
The Moving average is really very useful indicator which the traders use to analyze the market. The traders can identify the market trend and can determine the direction of the price. They can identify in which direction, the coin is moving and then they can take the important trading decisions. TO earn high profit and to save from risk, the traders use the MA to get the best entry and exit spots. The traders can also find the trend reversal spots using the Moving Average.
The Moving Average crossover strategy is very helpful and useful trading strategy which the traders use to get the best trading decisions. In this technique, the traders combine two Moving average. A pair if formed of MAs in the Moving average crossover trading technique. In the pair, we can combine the SMA with EMA, EMA with WMA, WMA with SMA or each with itself.
Here the one MA which we use in the pair is slow. The other one is fast. The slow MA has the long value of the time period while the fast has the short value of the time period. The slow one produce the slow signals. It react to the price slowly and produce the late signals. But on the other hand, the fast MA in the pair react to the price quickly and produce the fast signals.
The cross over of the MAs produce the trend reversal signals. When the MAs cross each other, the trend get change. When the fast MA cross the slow MA and move above, it indicate that there is bullish trend in the market. This show that the buyers are in control and buying pressure is high as compare to the selling pressure. This produce the buy signals. The traders should enter into the market when this crossover happen.
When the slow MA cross the fast MA and move above, it indicate that there is bearish trend in the market. This produce the sell signals. The traders should exit from the market when this crossover happen. This show that the sellers are in control and selling pressure is high as compare to the buying pressure.
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In the above screen short, i have combined the EMA with SMA where the EMA is the fast MA and SMA is the slow MA. The length of the SMA is set at 100 period and the EMA is set at the 20 period. The SMA is the simplest type of the MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots. This indicator lag behind the price and produce the late signals.
It use the historical price data for calculation. EMA is another type of MA which is use to identify the market trend, trend reversal. It also give the other trading signals like best entry and exit spots. It use the today's asset's price and produce the fast signals. The EMA produce the fast signals.
When the SMA cross the fast EMA and move above, it indicate that there is bearish trend in the market. This produce the sell signals. The traders should exit from the market when this crossover happen. This show that the sellers are in control and selling pressure is high as compare to the buying pressure.
When the EMA cross the SMA and move above, it indicate that there is bullish trend in the market. This show that the buyers are in control and buying pressure is high as compare to the selling pressure. This produce the buy signals. The traders should enter into the market when this crossover happen.
In the above screen short, i have combined the EMA with SMA. The SMA has the long value which is 100 period and EMA has the short value which is 20 period. EMA is fast MA and SMA is slow MA. The EMA react to the price quickly where as the SMA react to the price slowly. The EMA use the recent price data for calculation and SMA use the historical price data.
When these MAs cross each other, the trend get reverse. In the below screen short, the SMA 100 cross the EMA and start moving above. This give us the trend reversal signals. The price start moving below the MA which indicate that there is bearish trend. This give us the sell opportunity. We should exit from the market by setting the stop loss and take profit level.
In the below screen short, the EMA 20 cross the SMA 100 and start moving above. This give us the trend reversal signals. The price start moving above the MA which indicate that there is bullish trend. This give us the buy opportunity. We should enter into the market by setting the stop loss and take profit level.
In the cross over trading strategy, the traders can change the length of the MAs. They can set the length of period according to their own need. One MA is slow and other is fast. This technique is extremely beneficial for the traders to identify the market trend, trend reversal, entry and exit spots. But this strategy work only in trending market. When here is clear market trend, the traders can get the advantages of this strategy. In case of trending upward or downward, the traders can use the cross over strategy to get the best trading signals.
But when the market is in ranging zone, the technique do not work good. We cannot get the best trading signals when market is in sideway moves. In case of the ranging zone, the traders cannot get the best trading signals using the MA crossover technique. in this case, the technique may produce the false signals and trader may lose their money by following those signals.
Question 5- What are Limitations of Moving Average
The moving average indicator is a technical tool which is very popular among the traders in the crypto market to analyze the market efficiently. This tool work to identify the market trend. This is very simple to read and easy to understand. This indicator work for the traders to understand the market structure and to predict the market future. The traders get to know whether the price of the coin is rising or declining. This also help to identify the trend reversal and to get the best entry and exit spots. But this is technical indicator and like all other technical indicators, this one is also not perfect. This indicator also have some limitations which i have mentioned below.
- This indicator work efficiently but only in trending markets. We can use the Moving average to get the best trading signals. When market has a clear direction, the MA produce very useful trading signals. The traders can get the best entry and exit spots in trending markets. But in case of the ranging zone, the MA fail to produce the good trading signals. This indicator produce the wrong signals because of which, the traders may make the wrong trading decisions and may lose their money.
- This indicator work good when the traders set the time frame efficiently according to their trading plans and strategy. In case of setting the wrong time frame, the indicator produce the wrong signals and traders may lose their capital.
- This indicator consider the historical price data and do not consider the other important parameters which can effect the market price. This is also a huge disadvantage of the MA.
- The MA disregard the multiple time series by calculating the average price of the crypto market.
- This indicator sometime produce false signals even in trending markets.
- We should not rely on the MA when we use it alone. We should combine the MA with some other technical tool to get the best trading signals. The MA alone do not produce the more accurate and reliable output.
- The MA lag behind the price. This indicator produce the late signals. The signals are produced after the price has been changed. These late signals sometime bring huge lose for traders.
Conclusion
This lecture has been delivered by the @shemul21 in which he has discussed the Moving average thoroughly. The moving average indicator is a technical tool which is very popular among the traders in the crypto market to analyze the market efficiently and to predict the market future. This tool work to identify the market trend. This is very simple to read and easy to understand. The traders get to know whether the price of the coin is rising or declining. This also help to identify the trend reversal and to get the best entry and exit spots. We have also learned the weak points of the MA.
This indicator work efficiently but only in trending markets. But in case of the ranging zone, the MA fail to produce the good trading signals. This indicator produce the wrong signals because of which, the traders may make the wrong trading decisions and may lose their money. This indicator sometime produce false signals even in trending markets. We should not rely on the MA when we use it alone.
We should combine the MA with some other technical tool to get the best trading signals. The MA alone do not produce the more accurate and reliable output. The MA lag behind the price. This indicator produce the late signals. I have learned a lot about the Moving average in this lecture. Thanks to @shemul21 once again for delivering such an amazing and informative lecture.