Moving Averages & MACD

by | Aug 2, 2020

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

Technical analysis trading strategies are grounded on the crypto market trends. Professional analysis specialists assume that crypto prices will generally follow short, intermediate, and extended-term directions, which have happened regularly based on historical trends. Since the crypto market might seem unpredictable daily, crypto-assets tend to follow a wider trend, known as a bull or bear market. Before we get into the top two TA indicators that traders use, I want to reiterate that no indicators guarantee a trade will be a winner. TA indicators are intended to deliver validation of a trade thesis. New traders occasionally struggle since they become too dependent on technical indicators. Symbols are used to support a trading strategy, and other fundamentals should be considered before placing a trade.

Understanding Moving Averages

Moving averages are the most simple and broadly used technical indicators. Moving average is often used in technical analysis by trades; it levels price histories by averaging daily prices over some time. There are two basic and frequently used moving averages; first is the simple moving average (SMA), which is the simple average of a coin over a specific number of periods, and then the second being exponential moving average (EMA), which offers a higher weight to more recent prices.

Simple Moving Average (SMA)

SMA is a calculation of a moving average that adds the current closing price of a crypto coin and then divides that by the number of periods. SMA is a calculation of a moving average that adds the current closing price of a crypto coin and then divides that by the number of periods. Short-range means react swiftly to variations in the underlying price, while long-standing averages respond much slower. Now let’s look at a simple example of SMA and see how it is calculated. Below we have a ten-day closing price of BTC (not exact closing prices):

Week 1 (5 days) – 5200, 5250, 5300, 5350, 5400

Week 2 (5 days) – 5450, 5500, 5550, 5600, 5700

A 5-day MA would average out the closing prices for the first five days as the primary data point. The following data point would remove the initial price, add the price on day six, take the mean, etc. 

Exponential Moving Average (EMA)

EMA calculates an MA that places a more considerable bulk and significance on the current data points. EMA reacts to recent price changes than SMA, which applies an equal weight in the period. Crypto traders frequently will use many different EMA days, for instance, fifteen-day, fifty days, ninety-day, and two hundred and fifty-day moving averages. EMA’s are commonly used alongside other TA indicators to confirm significant moves in the crypto market. For crypto traders who trade intraday and on volatilely, the EMA is more appropriate. For instance, if an EMA on a five-day chart displays a stable upward trend, a crypto trader’s trading strategy might trade only from the long side on an intraday chart.

Moving Averages & MACD
MA and MACD on HyperTrader

Understanding MACD

The Moving Average Convergence Divergence is a trading indicator broadly used by crypto traders for technical analysis. MACD is an indicator that uses moving averages to define the motion of a crypto asset. The MACD indicator is produced by deducting two EMAs to create a MACD line, which is then used to calculate another EMA representing the signal line. Furthermore, the MACD histogram is calculated based on the variances between those two lines. The Histogram and the other two mentioned lines oscillate above and below a middle line, the zero line.

Components of MACD

Hence, the MACD contains three components moving around the zero lines: the MACD line, signal line, and the Histogram. The MACD line is calculated by deducting the twenty-six EMA from the twelve EMA. The signal line is a nine-period EMA by default. When the signal line is combined with the MACD line, it depicts convergence and divergence, which are the basis of many trading signals. Lastly, the Histogram signifies the distance of the MACD line from the signal line. The Histogram will either be positive when the MACD line is above the signal line or negative when it is above the MACD. 

The centerline and signal line also delivers understandings through divergences between the MACD chart and the crypto coin’s price action. For instance, say the price action of Bitcoin marks a more significant high though the MACD generates a lower high, this would signal a bearish divergence, which interprets not enough buying pressure from the market. Bearish changes usually mean an excellent selling chance for traders because they lean towards price setbacks. In contrast, if the MACD line creates two increasing lows that line up with two dwindling lows on the Bitcoin price means a bullish divergence, which indicates that the buying pressure for Bitcoin price is more substantial. 

Conclusion

In conclusion, when traders use technical analysis, Moving Averages and MACD are two of the most beneficial trading tools available. They both are relatively easy to use. However, they are both effective at recognizing market trends and momentum.

Try HyperTrader for free for 7 days – no credit card required. Download now

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"
Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

What are Airdrop Scams and How to Stay Safe?

What are Airdrop Scams and How to stay safe from them?

Top 5 NFT Marketplaces – Ethereum, Solana & Terra

Top 5 NFT marketplaces across the blockchain networks of Ethereum, Solana, and Terra.

What are Zero Knowledge Proofs?

In this blog post, I try to explain the concept of zero-knowledge proofs in a simplest possible language.

Top 5 Play2Earn NFT Games

What are play2earn games and the top 5 play2earn NFT games?

Top 5 DeFi Aggregators

What do you mean by a DeFi aggregator and what are the top 5 DeFi aggregators?

What are LP (Liquidity Provider) Tokens?

What are LP tokens and how do they benefit the DeFi ecosystem and facilitate yield farming opportunities?

What’s a Multisig Contract?

A layman’s guide to understanding multisig contract.

Understanding Decentralized Storage Networks

A layman’s guide to understanding decentralized storage networks

Understanding Impermanent Loss

A layman’s guide to understanding and calculating impermanent loss in DeFi?

A Guide to Elastic Supply Tokens

What are elastic supply tokens? Let’s find out.

What are Airdrop Scams and How to Stay Safe?

What are Airdrop Scams and How to stay safe from them?

Top 5 NFT Marketplaces – Ethereum, Solana & Terra

Top 5 NFT marketplaces across the blockchain networks of Ethereum, Solana, and Terra.

What are Zero Knowledge Proofs?

In this blog post, I try to explain the concept of zero-knowledge proofs in a simplest possible language.

Top 5 Play2Earn NFT Games

What are play2earn games and the top 5 play2earn NFT games?

Top 5 DeFi Aggregators

What do you mean by a DeFi aggregator and what are the top 5 DeFi aggregators?

What are LP (Liquidity Provider) Tokens?

What are LP tokens and how do they benefit the DeFi ecosystem and facilitate yield farming opportunities?

What’s a Multisig Contract?

A layman’s guide to understanding multisig contract.

Understanding Decentralized Storage Networks

A layman’s guide to understanding decentralized storage networks

Understanding Impermanent Loss

A layman’s guide to understanding and calculating impermanent loss in DeFi?

A Guide to Elastic Supply Tokens

What are elastic supply tokens? Let’s find out.

%d bloggers like this: