Blockchain and Cryptocurrency Advanced - Crossover and Limitations When Using Moving Average Indicator on a Chart

When it comes to crossover when using moving averages indicators, crossovers can either be bullish or bearish and can also be referred to as the golden cross or the death cross. Crossover in moving averages term basically means that there is a cross between two moving average lines which is a combination of a shorter period moving average and a longer period moving average. Shorter period moving average can be the 50 EMA or 50 SMA and longer period moving average can be the 200 EMA or 200 SMA. When the 50 EMA line crosses above or below the 200 EMA line, a crossover has occurred. A golden cross occurs when the shorter period 50 EMA line crosses above the longer period 200 EMA line. Also, a death cross occurs when the shorter period 50 EMA line crosses below the longer period 200 EMA line.

Bullish crossover (Golden cross)

_{Screenshot of BNB/USDT Chart on tradingview}

From the chart BNB/USDT chart above, we can see that the bullish crossover or the golden cross occurred when the shorter period 50 EMA line crossed above the longer period 200 EMA line. After that, what followed next was an upward price movement or uptrend.

Bearish crossover (Death cross)

_{Screenshot of BNB/USDT Chart on tradingview}

From the chart BNB/USDT chart above, we can see that the bearish crossover or the death cross occurred when the shorter period 50 EMA line crossed below the longer period 200 EMA line. After that, what followed next was a downward price movement or downtrend.

The Limitations of Moving Average

• One of the main limitation of the moving average indicator is that it is a lagging indicator which makes it difficult to predict future trend in the market.
• Moving average indicator only works with historical data, this makes it impossible to take into account other factors that affect price movement in the market
• The moving average can make it difficult to carry out short term trading strategy as due to sharp price volatility.
• Moving average indicator is mostly only useful in a market that is trending
• Due to rapid price volatility in the market, the moving average indicator can give false signals
• Choosing the wrong period length can have a massive negative impact on the signal generated by the moving average indicator.

When it comes to technical analysis, moving average is one of the technical indicators that is commonly used by a lot of traders and investors to smooth out noise on the price chart and to better understand the direction of the market. A moving average indicator compares the latest prices of any cryptocurrency asset with the average price of that cryptocurrency asset during a specific time period. A lot of traders make use of the moving average indicator to identify trends in the market and also buy and sell signals. When used on the right timeframe and period length, the moving average indicator is a very powerful indicator to identify and confirm trends, get support and resistance levels and buy and sell signals.