What are and how do Exponential Moving Averages work in trading? EMA 50 and EMA 200.

What are and how do Exponential Moving Averages work in trading? EMA 50 and EMA 200.

By drummis | Tips for cryptocurrencies | 24 Jan 2021


Exponential Moving Average:

 

The exponential moving average (EMA) indicates the weighted average price in a certain period. That helps you see what the average price would be for that period. The most used for trading are those of 50 and 200 periods. The first gives you the average of the last 50 days and the other of the last 200. The first one, because it is a short period, moves faster, is more sensitive to the current price, and the 200 one is slower because it takes into account longer history, so the average is not so susceptible to the current price ... And they are mobile precisely because they vary with the price.

In trading they are used as support if the price is going down, and resistance if it is going up. Breaking from the bottom up with the price would indicate bullish and breaking down bearish (I am simplifying so that the concept is understood).
The famous golden cross occurs when the average of 50 breaks from the bottom to the top of the 200 and is an indicator that a bullish period could begin, in reverse bearish.

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As we can see in the daily candle chart, the 200 EMA is green and the 50 EMA is blue. Every time the 200 remains above the 50 we are in a downward cycle, and conversely, when the 50 is above the 200, upward cycle. The orange circles indicate the golden cross, the beginning of the bull cycle, and the red squares the death cross, the beginning of the bear cycle.

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As we can see in this 4-hour candlestick chart, in the bullish cycle the price remains above the 50, and uses it as support every time there is a correction, to go looking for a higher price. The moment the price breaks the 50 EMA, the support was broken. It does not imply that the bullish cycle has ended, but rather that it is a sign that there is going to be a stronger correction. Now our next support is the 200 EMA, which is a stronger support, being a price average of a longer period. Breaking the average of 200, means that the correction may be even stronger, which is what is happening at the moment with BTC.

In order to observe a trend, it is recommended to see it in one-week or one-day candles. On the other hand, if we want to trade, four-hour candles are recommended.
I hope it has been useful to you to better understand the analyzes that traders do!

#Drummis


drummis
drummis

I'm criptocurrency enthusiast!! I like trading. My favourites are ETH, BTC and Theta.


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