There are 3 primary ways in which trader’s use the moving average:
#1. Indentify the direction of the trend: When prices are trending up, the moving average will also move higher, reflecting the increasing prices over an extended period of time. This could be interpreted as a bullish signal. The opposite is true if the price was consistently trading below the moving average, where traders might interpre
#2. For support and resistance levels: The moving average can be used to identify support and resistance levels. If the moving average is trending higher, crypto traders may enter the market on a retest of the moving average. Similarly, if the crypto trader is looking to short an over bought market or to exit a previous trade, then the moving average can be used to identify short entry or as a stop loss on the traders previous entry. The opposite is occurs for down trends.
3.Using multiple moving averages is common, crypto traders use of multiple moving averages as an indicator within itself. This allows traders to simultaneously assess the short and long-term trends in the market. As moving averages cross, it can be construed as weakness or strength for a specific digital asset.This method of using more than one moving average can be extremely useful in trending assets and markets and is similar to using the MACD oscillator. When using multiple moving averages, many crypto traders will look to see when the lines will cross.
A strong bullish indicator is referred to as ‘The Golden Cross’ where as a bullish pattern in reverse is referred to as the ‘The Death Cross’. A Golden cross is validated when the short-term moving average (ex: 50day SMA) crosses above a long-term moving average (ex: 200day SMA). The Death cross is represented by the short-term moving average crossing below the long-term moving average. Crytpto Traders often enter a postiion on the occurance of a golden cross and exit the market on occurance of the Death Cross These crossing of trendlines is considered the strongest signal moving averages can provide and are generally fairly highly respected. If nothing else, these inidicators hold true because the bulk of traders view and trade them similarly.