What is the MA? Trade effectively with MA & EMA lines
Description of What is the MA? Trade effectively with MA & EMA lines
What is the MA? Should I use EMA or MA for trading? Learn about the characteristics and meaning of MA & EMA lines now!
Technical analysis is almost a must-know if you want to trade coins or invest in cryptocurrencies, the use of technical indicators makes it easier to analyze charts and make better trading decisions.
The market has become more and more complex, over time there have been hundreds of thousands of different technical indicators, but the moving average (MA) and the exponential moving average (EMA) are still one of the most important indicators. The best and most used newspaper.
In this article, let's find out with Coin98:
- What is the MA, SMA & EMA?
- Meaning and Pros and Cons of each moving average.
- Experience in trading with MA, SMA & EMA lines.
What is the MA?
MA (Moving Average) is a tool that smooths the price over time, helping to show the trend of the market on the chart more clearly. The MA is also known as the moving average.
In the world of traders, there is an immortal saying " trend is your friend ", which means that trading according to the market trend will help you have a higher success rate and limit losses.
On the chart the moving averages are shown as shown below.
MA line on the chart
The SMA (Simple Moving Average) is the most basic version of the moving average (MA). Usually the SMA is also referred to as the MA.
How to calculate MA
The moving average is calculated by adding the total closing prices of the trading sessions and dividing it by the number of trading sessions.
For example: The 10-period moving average (MA10) is the sum of the closing prices of 10 trading sessions (on a daily candlestick chart , it is the closing price of 10 candles) and then divided by 10.
The general formula would be as follows:
You can rest assured that you will not need to do this calculation, most charting software or TradingView have already done this calculation.
Some popular moving averages
- Short-term (fast) MA: MA10, MA20.
- Medium-term MA (slow): MA50.
- Long-term (slow) MA: MA100, MA200, MA730.
Meaning of Moving Average
By cycle:
- The shorter the cyclical MA , the faster the speed , the closer it is to the current price.
- The longer the period MA , the slower the speed , the farther it runs from the current price .
In terms of trends:
- When the market is in an uptrend , the price will be above the MA lines.
- When the market is in a downtrend , the price will be below the MA lines.
The moving averages also act as dynamic support and resistance levels :
- In an uptrend market, the price usually corrects to touch the short-term MA lines and then continues to increase .
- In a downtrend market, prices often correct to touch the short-term MA lines and then continue to decline .
SMA . lines
The image above is an example of Bitcoin 's chart in a strong uptrend, the price corrected several times to the MA lines and then continued the uptrend. When the price increases, the MA is acting as a support, so after correcting to this level, the price will continue to increase because there, the demand for buying is greater, pushing the price to continue to increase.
Advantages and disadvantages of MA
Advantages: MA eliminates short-term noise fluctuations, so it gives high reliability, suitable for long-term trading, if trading on large timeframes, MA is a useful tool chosen by many traders.
Cons: In the short term, MA reacts slowly to signals and is not sensitive to fast movements in small time frames. This disadvantage will greatly affect if you are a trader who wants to trade, it often takes a long time to enter and scalping is often difficult to apply.
What is the EMA?
EMA (Exponential Moving Average) is also known as the exponential moving average.
The EMA has a slightly more complicated calculation equation than the SMA because:
- Assign multiple weights to the most recent trading sessions.
- Stick to the latest price movements more closely than the SMA.
- Faster response to unexpected fluctuations and dimensional digging.
Meaning of EMA
By cycle:
- The shorter the EMA has a period , the faster the speed , the closer it is to the current price.
- The longer the EMA has a period , the slower the speed , the farther it runs from the current price.
In terms of trends:
- When the market is in an uptrend , the price will be above the EMAs.
- When the market is in a downtrend , the price will be below the EMAs.
The EMAs also act as dynamic support and resistance levels.
- In an uptrend market, prices often correct to touch the short-term EMAs and then continue to rise .
- In a downtrend market, prices usually correct to touch the short-term EMAs and then continue to decline .
Still the same Bitcoin chart above, the price touches the EMAs more times than the SMA, if you trade short, there will be more opportunities to enter orders during the day than using the SMA.
Some popular EMAs
- Short-term EMA (fast): EMA 10, EMA 21.
- Medium-term EMA (slow): EMA 50.
- Long term EMA (slow): EMA 100, EMA 200.
Advantages and disadvantages of the EMA
Advantages: EMA closely follows market movements and easily detects abnormal signals, predicts price reversal faster than SMA, EMA is suitable for short-term trading in small time frames. You can take advantage of them to trade scalping (Scalping) with great leverage.
Cons: because it is too sensitive to the EMA, it can give noisy signals, deceive traders and the only risk avoidance for you is discipline and a specific Stoploss.
How to add moving averages on Trading View
Step 1: Go to the chart of any Crypto coin, click on the fx icon .
Step 2: Searching for the keyword “ average line ” will yield 2 results:
- Exponential Moving Average: EMA.
- Moving Average: MA.
Depending on which you want to use, you can click on that one.
Step 3: After calling the moving averages to the chart, the system will default to EMA 9 or MA 9.
Now, if you want to use lines with a length other than 9, you point your mouse, click on settings.
Step 4: Enter the desired length in the box, then click Ok to finish.
For example, if you want to choose to track MA 20, then click on the box that is 20.
How to use Moving Average (MA) to trade
Should use EMA instead of MA
MA lines were born long before the EMA and they are used a lot in the stock market, but are less applied than the EMA for trading in Crypto. The simplest reason is that the MA lag is quite long, and it takes longer to catch up to the fast pace of Crypto.
Of course, you can still apply with buying spots because they are not wrong, but if you trade with leverage, I think EMA should be preferred.
3 trading strategies with EMA
1. Trade with the trend
We can trade the trend with EMA in some cases as follows:
- The price line above the EMA in each timeframe confirms the uptrend for that EMA in that timeframe. We should only watch to buy , not to sell.
- The price line below the EMA in each time frame confirms the downtrend for that EMA in that time frame. We should only watch to sell , not buy.
- The sideways EMA crosses the price line confirming the sideways price line , there is no clear trend for that EMA in that time frame. We should wait for a clear confirmation before trading.
The smaller the EMA with the index, the closer it is to the price line and the more susceptible it is to noise. Therefore, the smaller the EMA to determine the trend, the more inaccurate it is. You should use the 200 EMA on the D1 time frame to confirm the long term trend of the market. And the EMA is a trend confirmation indicator because its lag has caused the market to run ahead of time.
2. EMA acts as Resistance - dynamic support
Since the price tends to come back to test the EMAs and there the price has a certain reaction, so you can trade them by:
- Wait for the price to return to the EMA and then proceed to enter an order in the direction of the trend.
- If the price breaks the EMA confirming the trend reversal, it should also wait for a backtest and then enter the trend.
3. Combined with other indicators
Moving averages are not the only popular indicator. In trading, it is still possible to use Trendline , Volume , RSI ... to confirm the signal many times to avoid interference.
As in the example below, you can see that when you draw the Trendlines, C98 is moving in a triangle, and is also below the 20 EMA. Therefore, if you have a long order with the entry on the bottom edge, can take profits when reaching the intersection of the upper edge and the 20 EMA, as this is the convergence of the two resistance lines.
Conclusion
Predicting prices in the financial markets is not a simple thing that you can master raising in a few days. Moving averages are an effective trading tool if you know how to take advantage of them in the process of creating your own trading system.
