Crypto Glossary

Posted on September 13, 2021 in

Moving Average

Investors and market analysts may use a moving average to help them predict the direction of a trend in the stock market. Averages can be calculated in a variety of ways, including by adding up all of the data points for financial security over a specified time period and dividing the total by the number of data points in the security. Due to the fact that new price data is obtained on a regular basis, this average is referred to by the term “moving average.”

What is a moving average?

The moving average is one of the most widely used market indicators across all industries. The moving average is, to put it another way, a calculation that determines the average price of an asset over a specified period of time. It is referred to as a moving average when it is used in place of the arithmetic mean. It can be either a basic “Moving Average,” which assigns equal weight to each price, or an “Exponential Moving Average,” which increases the weight of recent prices by using the most recent prices. 

The moving average is used by analysts to examine support and resistance levels by evaluating the price movements of an asset over time. A moving average is a price indicator that reflects the previous price movement of a security. Later, analysts or investors will use the information to forecast the future direction of the asset price. It is referred to as a lagging indicator because it produces a signal or indicates the direction of a given trend after the price action of the underlying asset has taken place.

Moving average in cryptocurrency

Moving averages are widely used in the financial markets, particularly in the stock market. This is also true in the case of cryptocurrency. Movements in the average of prices over a specified time period are commonly used to smooth out price fluctuations. 

Moving averages are a type of lagging indicator that records price movements in the previous period. It’s important to keep this in mind whenever you’re using these strategies to trade cryptocurrencies.

Moving average in crypto trading

When line graphs display moving averages, they show a mean of previous periods. The averages show the general trend without excessive movement on either side. For instance, a sudden increase in the price of a stock or cryptocurrency followed by a subsequent decline is not shown by a moving average as it would be on a regular price chart.

In this context, the moving average defined above is referred to as the simple moving average or SMA. The exponential moving average, or EMA, is a variation on this concept that emphasizes prices from the most recent period of the chart. As a result, these can be used to visually map the asset’s direction, as well as display support and resistance levels, among other things. Support and resistance levels are commonly used to describe levels at which an asset is not expected to fall below and levels at which an asset will have a difficult time breaking above and below.

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