How to Use Exponential Moving Averages to Trade Altcoins

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Moving Average is among the most widely used technical indicators in cryptocurrency trading. It lets traders know the average price of the asset in specific periods. Cryptocurrencies are highly volatile, making them a complex investment to speculate on. Moving average indicators help traders lessen the effects of its volatility. It enables users to smoothen out the heavy price movements and identify an average. Moving Average indicators are of two types:

  1. Simple (SMA)
  2. Exponential Moving Average (EMA)

Traders prefer the Exponential Moving Average (EMA) because it captures the latest price changes. In addition, it is considered more reliable than the SMA.

The EMA indicator can help identify the latest trends and potential support/resistance zones. If the EMA lines are below the candlesticks, it means the market is in a bullish trend. But if they move above the candlesticks, that means a sell signal and a bearish market.

Traders use this indicator to trade assets like cryptocurrencies, stocks, or forex. But in this article, we will explain how to use it to trade altcoins.

An example of how traders use the EMA in altcoins trading

EMA indicators are more suitable for trend trading. The EMA line shows a strong uptrend or downtrend. Depending on the ongoing market condition.

Technical traders often combine EMA with other indicators. However, day traders find it most useful. The EMA is effective for day trading once you identify an underlying trend.

Long-term traders often use 50 to 200-day indicators to spot trends and find the best opportunities. Once a price moves above or below the 50-day moving average, it indicates a reversal in the trend.

Short-term and day traders commonly use the 8 to 20-day EMA indicator. If the EMA line rises above the price within the period, that is a signal to sell because the price is falling. If the price remains above the EMA line within the specified period, it is an uptrend and a signal to buy the asset.

Different EMA strategies for trading altcoins

As mentioned, EMA works primarily in trending markets. But traders can also use them to identify support, resistance, and crossovers.

EMA trend trading

The trend indicates the market sentiment regarding the crypto’s price. The first step is identifying the average price of the altcoin within a given period. Then determine where the EMA line sits, below or above this price.

To identify the average price, choose the period you wish to average. The popular period for day traders is 8, 12, 15, or 20. For example, if you set the EMA on 20 on a one-hour chart, you should get the average price for the last 20 hours.

If the crypto asset trades above the EMA, it indicates an uptrend and signals buy trade opportunities. If it is trading below the price, it means falling prices and signals sell opportunities.

Support and resistance trading

EMA can indicate potential resistance and support areas, offering an opportunity to capitalize on these points in the crypto market.

The support area is where the market accepts the price and is more willing to go long (buy).

The resistance area is the point at which the market rejects the rising crypto price, leading to a sell-off.

Long-term traders can use a 50 or 100 period to identify these zones in the price chart. That means in a downtrend market, the EMA will serve as your support point. In an uptrend, it will be the resistance area.

For example, Ethereum has experienced a downtrend market since the start of 2022. Using 50 as our time in a one-month chart, we can determine where relief rallies paused. That can indicate the next resistance point and show where to enter a short trade.

EMA crossovers

Moving average crossovers occur when the faster MA line crosses above or below the lower one. It signals a significant shift in the ongoing market trend, creating an opportunity to go long or short.

The golden cross is one of the most famous among long-term crypto traders. It involves the 50 EMA line and 200 SMA line crossing paths. The 50 EMA line moves above the 200 SMA line, indicating buy trade opportunities. This price move means that short-term and long-term traders are buying the altcoin.

EMA crossovers can be applied in any timeframe, whether you’re a day trader or longer term.

How to sell in a downtrend using Exponential Moving Average

Once an altcoin enters a bearish market, its price continues to fall, reaching lower lows and lower highs. You can identify a downward slope using any period, depending on your trading style. An 8 to 20 is typical among intra-day traders. And 50 to 200 is used mainly by longer-term traders.

Combining a 20-day EMA and 50-day SMA can effectively find the best entry points in a downtrend market. For instance, assuming ripple started a downtrend in August. The 20-day moving Averages begin a downward slope. Once the trend fully establishes, the trader can enter a sell position and set a stop loss slightly below the 20-day average. Using the 50-day SMA, the trader can identify a reversal in the downtrend. So if a buy trade is open, the trader has to exit the trade at this point and enter a buy position.

Luckily, moving average indicators are accessible on most trading platforms. You can also add multiple MAs time frames and calculations on the trading chart. It allows you to combine EMA and SMA for effective results in some strategies, especially crossovers.

Conclusion

The cryptocurrency market offers traders many opportunities due to its high volatility and liquidity. The most effective strategy for capitalizing on this market is identifying trends. That is why moving averages are popular indicators for trading altcoins. However, the EMA trading signals are more reliable if combined with other indicators. The RSI (Relative Strength Index) or oscillator is a popular and effective combination. Using it with other tools and confirming signals before placing trades is better.

Frequently Asked Questions

How do I trade using the EMA?

The most effective way to trade using the EMA is to combine it with other indicators. The RSI (Relative Strength Index) or oscillator is a popular and effective combination. However, using it with other tools and confirming signals before placing trades is better.

What is the difference between EMA and SMA?

The exponential moving average (EMA) gives more weight to recent prices, while the simple moving average (SMA) applies an equal weight to all prices in the period. As a result, the EMA will react more quickly to recent price changes than the SMA.

 

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