What is a Moving Average?
A moving average (MA) smooths price data by calculating the average price over a specific number of periods. It helps identify trend direction and potential support/resistance levels.
Types of Moving Averages
Simple Moving Average (SMA)
Equal weight to all prices in the period.
SMA = (P1 + P2 + ... + Pn) / n
Exponential Moving Average (EMA)
More weight to recent prices, reacts faster to price changes.
Common Periods
| Period | Use Case |
|---|---|
| 9/10 EMA | Short-term momentum |
| 20 SMA/EMA | Short-term trend |
| 50 SMA/EMA | Medium-term trend |
| 100 SMA | Medium-long term |
| 200 SMA | Long-term trend, major S/R |
Trading Strategies
Trend Direction
- Price above MA = uptrend
- Price below MA = downtrend
Support/Resistance
MAs often act as dynamic support (uptrend) or resistance (downtrend).
Crossovers
- Golden Cross: 50 MA crosses above 200 MA → bullish
- Death Cross: 50 MA crosses below 200 MA → bearish
Multiple MAs
- Fast MA above slow MA = bullish
- Fast MA below slow MA = bearish
Key Levels for Bitcoin
- 200-day SMA: Major long-term trend indicator
- 21-week EMA: Bull market support
- 200-week SMA: Historical bear market bottom
Limitations
- Lagging indicator (based on past prices)
- Less effective in choppy/ranging markets
- Can give false signals during consolidation