Moving Average (MA): What Is It and How to Use It in Trading?

What Is a Moving Average? 

When starting to trade on the crypto market, many beginners trust the forecasts of famous investors and influencers too much. This often leads to unjustified decisions and financial losses because such advice may not account for your financial situation and market peculiarities. Before concluding trades, you should conduct your analysis.

The Moving Average (MA) indicator helps determine the average value of a token or coin for a given period. It is used in crypto analysis, allowing you to smooth out value fluctuations and recognize the trend’s true direction. 

A moving average is represented as a smooth line on a candlestick chart. The main task of an MA is to confirm already formed trends rather than make forecasts. In crypto analysis, 50-day and 200-day lines are most often used. With the help of this tool, trading volumes are also often analyzed. 

Main Types of Moving Averages 

MA lines are divided into types, each with specific features and purpose. We will familiarize you with three types of MAs: 

Simple Moving Average (SMA) 

Each period (candle) has a closing rate. Traders choose the desired timeframe and output the average value — SMA. This indicator smooths out rate jumps but is less sensitive to sudden market changes. The Simple Moving Average tool is considered more effective in long-term studies, for example, when looking for general Bitcoin trends on a monthly timeframe. 

Exponential Moving Average (EMA) 

New price information is usually more important to a bidder than old price information. While all rates are equally prioritized in the context of SMA, EMA (Exponential Moving Average) emphasizes more recent quotes — those closer to the current moment. 

EMA is more likely to respond to spikes in price, so if the market suddenly starts to rise or fall, it will show it faster than SMA. This method of analysis will be most appropriate for short-term trading. 

Weighted Moving Average (WMA) 

The WMA (Weighted Moving Average) also emphasizes the last days/hours/minutes but not in the same way as the EMA. The first period has the lowest priority (weight), the middle point — medium, and the last period — the highest. This indicator reflects changes in the market situation more quickly than SMA but slower than EMA. Experts advise the use of WMA signals for intermediate and short-term operations. 

How to Determine the Moving Average? 

Most platforms calculate MA automatically, but understanding the process will allow you to approach the analysis more consciously. 

SMA 

In this case, the formula is applied:

(x1 + x2 + x3 +⋯+ xn ) ÷ n, where: 

• x1,x2,x3,…,xn — cryptocurrency rates;
• n — the total number of periods.

Example: 

Let’s calculate 3 SMAs for cryptocurrency A, whose value in the last 3 days was $55, $58, and $56, respectively:

SMA = (55 + 58 + 56) ÷ 3 = $56,33 

EMA

This type requires using a special multiplier (coefficient), which makes the last period more prioritized. Its value is determined by the formula: 

2 ÷ (number of periods + 1) 

EMA is a moving average, which is calculated by the formula: 

closing price for the current day x multiplier + (1 – multiplier) x EMA for the previous day/hour/minute. 

Example: 

Let’s try to calculate the EMA for three days for the same cryptocurrency A with prices of $55, $58, and $56. 

Multiplier:
2 ÷ (3 + 1) = 0.5 

Calculating the EMA: 

1 EMA = $55 (first-day price) 

2 EMA = 58 × 0.5 + 55 × (1 − 0.5) = $56,5 

3 EMA = 56 × 0.5 + 56.5 × (1 − 0.5) = $56,25 

WMA

Weighted moving average: formula: 

((x1 × w1 ) + (x2 × w2 ) +⋯+ (xn × wn )) ÷ (w1 + w2 +⋯+ wn ), where: 

• x1,x2,…,xn are the closing prices;
• w1,w2,…,wn — weights for each period.  

Example:

We define 3 WMAs for cryptocurrency A with rates of $55, $58, and $56, giving each successive day a higher weight: 

3 WMA = ((55 × 1) + (58 × 2) + (56 × 3)) ÷ (1 + 2 + 3) 

3 WMA= (55 + 116 + 168) ÷ 6 = $56,5   

According to the examples with cryptocurrency A, it is easy to trace that under the same conditions, you can get different, albeit similar, values of the moving average: 

• 3 SMA = 56,33
• 3 EMA = 56,25
• 3 WMA = 56,5  

This shows that each type of MA has its calculation peculiarities and reacts differently to changes in quotes. 

Application of a Moving Average in Trading 

Let’s consider the most common ways of applying an MA: 

To determine trends 

In the crypto sphere, the moving average helps traders understand in which direction the asset rate is moving. Short-term MAs (5, 10, 20, 50 days) are used to analyze fast trends, while long-term MAs (100, 200 days or more) are used for global trends.

Now, let’s consider what signals you should look at to determine: 

• Long-term trend. If the rate is above the 200-day moving average, it signals a bullish market (prices are rising), and if it is below, it signals a bearish market (prices are falling).
• Short-term trend. Moving the value relative to the 50-day line helps assess local changes. Exceeding the current rate of the 50-day MA indicates an uptrend, while lower values indicate a downtrend.

Example: 

Let’s imagine that the average price of Ethereum (MA) over the last 50 days is $2,000, and the current rate is $2,200. This indicates that in the short term, the market is dominated by buyers, and the trend can be considered upward. If the price drops to $1,800, it will indicate a decrease in buyer interest and a probable continuation of the decline. 

To find key levels 

An MA is often used as a dynamic level of: 

• Support. In a rising market, an MA with a long period can serve as a “support” for the price, preventing it from falling. This is because traders perceive this line as a buy signal, expecting further price growth.
• Resistance. In a descending market, the same long MA can act as a “barrier,” above which the rate cannot rise. Investors regard this as a signal for selling.

Advantages and Disadvantages of a Moving Average

Having found out what a moving average is and what it is used for, we can immediately emphasize its advantages: 

• Understanding the trend. MA smooths out sharp fluctuations in value and makes it easy to determine whether the token is rising or falling.
• Accessibility. The indicator is easy to customize, and the graphical display makes it convenient even for beginners.
• Versatility. Moving averages can be used to analyze any financial assets, including cryptocurrencies.

However, the MA indicator also has disadvantages: 

• Delay. MA reacts to changes with a delay, so in case of sharp exchange rate jumps, its values may differ significantly from the current market value.
• Inefficiency in a sideways market. In the absence of a pronounced trend, the moving average in trading does not give useful signals and can confuse.
• False signals. The high volatility of the crypto market often leads to the fact that the price crosses the MA, but this does not always indicate the continuation of the trend.

Popular Strategies Using a Moving Average 

We have gathered popular trading strategies with tips on how to use Moving Average signals: 

Trend Trading 

Check the direction of a long-term MA. An uptrend indicates a bullish trend, and a downtrend indicates a bearish trend. 

How to use this? 

• Buy if the price bounces off the MA on an upward move.
• Sell if the price reaches the MA on a downward move.

For example, in a bullish market, it is better to wait for pullbacks to the 50-day or 200-day MA to buy. 

Combining multiple MAs 

Add a short-term (e.g., 7-day), medium-term (30-day), and long-term (100-day) MA to the chart. Look at their positioning: if a short-term MA is above the long-term MA, the market is rising, and if it is below, the market is falling. 

How to use this? 

When moving averages fan upwards, experts advise to buy, and when they fan downwards, experts advise to sell. 

Trading on Crossovers 

When lines with opposite periods cross, traders can get additional signals: 

• Golden Cross. The crossing of a short-term MA from the bottom up through a long-term MA often indicates the beginning of a strong bullish trend.
• Death Cross. Conversely, crossing a short MA from top to bottom through a long MA signals the dominance of a bearish trend.

How to use this? 

Once you confirm the crossover, you can enter the trade. Profit-taking is best done when MAs start to change direction. 

Trade on support and resistance levels 

Look at how the price interacts with an MA: 

• If the price holds above the moving average, it can be considered a support level — this is a buy signal.
• If the MA acts as resistance, it is a favorable time to sell.

How to use this? 

• When buying, place a stop-loss slightly below the moving average, and when selling, place it slightly above it.
• Take profit as soon as the price reaches the opposite level.

Tips for successful trading 

1. Do not limit yourself to MAs only. Use them in conjunction with other tools, such as RSI, Bollinger bands, or Volume.
2. Remember that frequent crossovers on small timeframes can be false if they are not confirmed by the overall market picture.
3. Prefer to work in markets with strong trends, as MAs are less useful in corrective conditions.
4. Before using the strategy on a real account, test it on a demo account to evaluate its effectiveness and minimize risks.

Conclusion

A moving average is an indicator that simplifies the analysis of market trends, turning chaotic price movements into a clear picture. It helps evaluate the current market direction and determine the key levels where entry or exit points can occur. 

However, an MA is not a universal solution; it is only one of the trader’s tools. In conditions of rapid changes, it can lag behind, and in a chaotic or sideways market, it can give contradictory signals. To get more accurate results, we advise you to check MA indicators with the data of other indicators. 

A moving average is suitable for investors who appreciate simplicity and want to understand market patterns better. It helps identify trends and make more informed decisions. 

Want to buy cryptocurrency with a card?
With ObmenAT24, you can perform the operation safely, at a favorable rate, and with minimal commissions. Applications are accepted only through the official website. Beware of scammers!