Authored by: @hetty-rowan

So hello LBI peeps, here we are again. Are you all ready to come with me on a little trading tutorial? And have any of you actually already achieved a positive result with one of the technical indicators that I have described? I am very curious to hear about that. Because I have to say that it worked out pretty well for me ...

Certainly the technical indicator that I am going to describe today has provided a nice boost of around $40 last week, which is a lot for me by the way. Unfortunately, I don't have a big budget, and on a small budget of 200 dollars, 40 dollars in profit is a lot. But how did I do that?

Yes by learning yet another technical indicator. And this one isn't even the hardest to learn. At least, I thought this was a very clear story, which I could also follow fairly easily once I opened Binance. I have to tell you… Before you buy or sell something ALWAYS think about your goal, AND also check the timeframe of your graphs. If you want to buy something to last longer, don't look into the short timeframes. You could then make a hasty decision. But if a cryptocurrency suddenly rises sharply, you can easily base that on the short timeframes, as long as you recognize the signals on time and sell them again… because those short spikes upwards often drop down just as hard.

Well, that was that… but what indicator did I use this week?

Yes, of course, that is the question you have, and I will not let you guess about it for too long. I used the “Moving Averages” this week. And in combination with the “Relative Strength Index” and the “Volume”, I found this very pleasant to work with.

I also took a look at the Fibonacci Levels. But math is really not my forte, and I seriously had no idea where to draw the levels, so I fear, to understand that, I would need a little longer. And this “Moving Averages” is really a bit simpler to dive into.

Well, here we go, what is the “Moving Average” indicator. What does it do, and what can you do with it?

The moving average

Is a line that you can plot across your trading chart that shows the average price for the number of periods you have set.

This simple line is a very popular indicator, especially for crypto traders. Why? For a very simple reason. Cryptocurrency deals with volatility more like the stock market. And this volatility often results in short trends going up one day, and short trends going down as well. That is nice for when you are day trading. Then you want to use these price movements to improve your position. But if you want to know whether you should buy crypto now for the longer term, it is not so useful to look through the fluctuating price and determine what your ideal entry point is. Same with selling. The Moving Average filters all this noise out of the charts, and this line just shows you smoothed data… which gives you a great way to determine if the uptrend you see is short or long term. Of course, as we know by now, there is no technical indicator 100%, and it is also not wise to make your decision based on only 1 technical indicator. But in any case, this technical indicator is a clear line, which is easy to understand. Especially if you are just starting to trade!

With the Moving Average you have a few more differences, namely the SMA (Simple Moving Average), and the EMA (Exponential Moving Average). To know exactly what that is, and what it does, we have to take a look at these differences.

The SMA simply takes the average of the number of days you set.

So let's say… SMA 14, then the Simple Moving Average just calculates the average over the past 14 days, EVERY day being equally important.

The Exponential Moving Average does this differently. He also calculates the average, but finds the last days more important than the previous period. So if you do an EMA 26, this tool calculates the average over the past 26 days, with the last days being more important for the outcome.

Of course there are also formulas attached to this, and to know what this Moving Average does, it is important to at least know how the formula is structured, so that in case you think this is desirable, you always have a Moving Average yourself.

Formula of SMA

We start with the formula of the SMA. Now suppose you want to know the SMA of Bitcoin for the past 21 days, then you take the chart of Bitcoin. You take over the price of the candle from the past 21 days. The candles have an opening price and a price at which they are closed. To calculate this average, you naturally take the price at which Bitcoin closed the candle that day. If you add these 21 values ​​and divide by 21, you have the SMA of the past 21 days of Bitcoin. Now you only have to show the first of your 21 prices for each subsequent day, and add the new last day ... If this goes up, you see an upward trend, and in a downward trend you will of course see a downward trend. . This calculation is the SIMPLE MOVING AVERAGE.

Formula of EMA

It gets a bit more complicated to calculate the Exponential Moving Average now. More emphasis is placed on the price of the cryptocurrency of the last periods. While the SMA considers every day equally important, the EMA finds the last days more important. The more recent the price, the more influence it has on the amount of the EMA.
At the EMA, the number of periods on which you plot it is also more important. The weight, and thus the degree of importance, that the EMA line gives to the most recent prices is strongly dependent on the number of periods you set.
The calculation of the price of the EMA for a certain period depends on all periods that have preceded this period. You therefore need a lot more data for an accurate EMA (10) than just the past 10 periods, as with the SMA (10).
You can calculate the EMA in several ways. First you need the formula of the SMA, because the EMA has to start somewhere. After that, you need a multiplier formula that determines how much weight is added to the most recent prizes.

Finally, you can calculate the EMA on the basis of:

• the initial EMA;
• today's price; and
• the multiplier.

For an EMA of 10 periods, the formula would look like this:

Initial EMA (10) = SMA (10) = (sum of all prices from last 10 days) / 10
Multi-Plier = (2 / (number of periods + 1)) = [2 / (10 + 1)] = 0.1818 = 18.18%

EMA = [price now - EMA (previous period)] * ​​multiplier + EMA (previous period)

The Multiplier

If we look at the 10-day EMA, we see that the multiplier is 18.18%. We therefore call this the 18.18% EMA. If you were to change the number of periods to 20, we would get a multiplier of 2 / (20 + 1) = 9.52% (try this out). This means that the 20-period EMA gives 9.52% weight to the latest price. The latter price thus determines the price of the EMA for 9.52%, while for the SMA (20) this would be only 5%.
You can also see that the percentage goes up as the number of periods goes down. The fewer the number of periods, the heavier the last price will be weighed.

It's all automated in the exchanges!

Fortunately, as always when it comes to a technical indicator, there is absolutely no need to come up with or even remember all these formulas yourself. Because all these tools automatically calculate what you want. That is perfectly implemented in the exchanges, and it is up to you to use it properly. I think it's really important to at least understand. So that your decision based on these tools can also be made RATIONALLY because you understand what these tools are trying to tell you.

Seeing an upward movement is nice, but only when you really understand why this move is going up (in the case of the moving average) does it show that the price is already going up over a longer period of time, only at such a time you can make an informed decision.

How do you make money on these Moving Averages?

With this information you as a crypto trader can buy or sell your cryptocurrency at exactly the right time. There are several strategies you can use to make money from moving averages:

• Support and resistance
• Analyze trend
• MA crossovers
• Moving Avarage Ribbons

As you can see, it is still important to understand several technical indicators. Among other things, to determine where the support and resistance lie (although the Moving Average line helps very well with this).

Support and resistance

One of the simplest ways to use the moving averages is as a dynamic support and resistance level. Where normal support and resistance lines are static and in one place, the line of the MA moves with the price.

A simple tactic that some crypto traders use is that they only look at the moving average as a support or resistance line. They buy cryptocurrency when it is tapped as a support line and resell when it is hit as a resistance line.

Analyze trend

The moving average is also very important in estimating the trend. Is it going up or is it going down? When the MA is rising, you can speak of an upward trend, and you should look for good times to buy cryptocurrency's. If the MA is declining, then we are in a declining trend and you better look for setups where you can short your cryptocurrency's.

And then now comes the tactic I used last week, which made me about $40 in profit.

MA Crossovers

I saw this described as “the most popular strategy among beginner traders and” and decided to give this a try. In combination with the RSI and Volume.

You are using two moving averages here:

• A fast MA line (short number of periods)
• A slow MA line (long number of periods)

The two MA lines most often used for this are the MA (9) and the MA (26). The MA (9) is dependent on the past 9 days and thus changes quickly based on the current price. The slow 26-day moving average reacts a lot slower to new price movements. A price change today has to be divided by 26 days and the price of 26 days ago still has an impact.

When the fast line moves through the slow line (crossover) you can speak of a trend change. For example, the slow trend may go down, but the current short trend may go up. When the fast MA line traverses the slow MA line, this trend can pull the slow trend along and we get a longer trend up.

You can therefore use the following strategy:

Buy cryptocurrency when the fast MA (the MA (9)) gets above the slow MA (the MA (26)).
Selling cryptocurrency when the fast MA gets below the slow MA.

Now I have to say that I only tried this out by hitching a ride on the daily movements that every crypto goes through, and used the MA Cross indicator in Binance. Which I myself have set for my clarity where especially the cross was very clearly visible. And in the 15 minute chart… by doing this for one and a half hours a day I made my profit.

Ribbon

Of course, such a crossover does not have to stay with 2 moving averages. When you use a lot more moving averages and they all seem to be crossing each other at the same time, this is a much stronger sign that the market is turning around.
The use of a lot of moving averages is called a ribbon. This is so called because it moves like a ribbon with the price (see images below). You can clearly see how strongly a trend is moving. When all moving averages move in the same direction, you can speak of a strong trend. The more MAs start to move against the grain, the weaker the trend appears to be getting weaker.
It only becomes really interesting when all these MAs intersect. This is a very strong signal that the trend is about to change.

Conclusion

The moving average is one of the simplest trading tools you can use as a starting crypto trader. You can already use a profitable crypto trading strategy today with a strategy like moving average crossovers. In addition, you can use the moving average to discover strong signals about how the trend is going to change.
As a (starting) crypto trader, the moving average is therefore a wonderful trading tool to have in your arsenal and one that is also not difficult to learn.

I AM NOT A FINANCIAL ADVISER!

Always do your own research and never bet more than you are willing to lose.