What are Moving Averages?
The moving average (MA) is a simple technical analysis indicator that smooths out previous price data by creating a constantly updated average price. The average is taken over a specific trading period, depending on whatever time period the trader chooses. Moving average strategies are popular and can be tailored to any time frame, suiting both long-term investors and short-term traders.
Example of Moving Averages
Looking at the 2D time frame of BTC (Bitcoin) we can see that there are three different moving average lines; the red represents the 30MA, green is the 100MA, and the black line is the 200MA. This is the ‘Golden Cross’ Indicator that uses all 3 of these averages and dots a yellow circle when a cross occurs. This chart represents a general upwards trend, shown by the three averages in an upwards swing right behind the price.
How to Trade Moving Averages
Traders trade moving averages as dynamic support & resistance lines, with the more advanced trading using the “Golden Cross” & “Death Cross” terms coined with the use of multiple moving averages. The definition of the Golden Cross is when the 50MA crosses above the 200MA indicating bullish momentum, while the Death Cross is when the 50MA crosses below the 200MA. Both crosses indicate that there has been a spark of interest in the market.