3 ways traders use moving averages to read market momentum


The first step in successful trading is to determine the short- and medium-term trends. Traders who always stand on the right side of the trend and use risk management principles usually end up profiting. An equally important activity in the transaction process is the calculation of inputs.

Many times, traders are afraid to pull the trigger at the best time and miss most of the rebound. When they see the market move higher from the sidelines, the desire to buy is increasing. Many times, they end up buying near the top.

To avoid such mistakes, it is important to design a simple purchase system. Every trader wants to buy at low points and sell at high points, but this is easier said than done. Instead, traders should focus on capturing the main part of the rally by taking as little risk as possible. Let’s learn some simple strategies to do this.

Trading in the interval trading market

Although the price behavior in the interval trading market is unstable and random, it is still possible to trade. If the range is too tight, it is better to watch the changes rather than try fluctuating price movements.

ADA/USDT daily chart. source: Transaction view

On the other hand, if the range is well defined and large as in the example above, the trader can try to trade. A simple method is to rebound from the support level to buy, and buy profit near the resistance of the range. The stop loss of this type of transaction can be kept below the support of this range.

The more the number of contacts of support and resistance in this range, the better the transaction, because the possibility of a see-saw is less. Usually, there will be a strong bullish or bearish action after every range-bound action. Therefore, when the trend changes, traders should change their trading strategies accordingly.

How to use moving averages to buy in a bull market

After the beginning of the bull trend, the asset continued to make higher highs and lower lows. The trader who had been waiting for a big buy missed the bus. Therefore, when traders identify the upward sloping 20-day exponential moving average and 50-day simple moving average, it’s time to look for entry opportunities.

Daily chart of BNB/USDT. source: Transaction view

Binance Coin (BNB) Began its upward trend in February, when the moving average began to tilt, and the relative strength index (RSI) continued to exist in the overbought zone.

After the trend is determined, traders should wait for low-risk buying opportunities. In an uptrend, the 20-day EMA provides strong support. Therefore, traders can wait for the price to fall and rebound from the 20-day moving average before buying. This can provide a low-risk buying opportunity because the stop loss can be placed below the 20-day moving average or below the swing low.

In the image above, the ellipsis is used to mark the points that traders can buy. The price fell to the 20-day moving average six times, which may be a good entry point. However, in one of the transactions, the stop loss may be touched.

On March 25, the price fell below the 20-day moving average and hit a swing low on March 16. This may hit the stop loss of short-term traders. However, the bears cannot maintain the price below the 20-day moving average because the bulls have bought the 50-day moving average drop.

The price quickly rose above the 20-day moving average on March 27, indicating that the upward trend has resumed. In this case, traders can buy at the close above the 20-day moving average, or they can buy at the recent swing high, because this indicates that the bulls have resumed command.

Let’s study more examples.

BTC/USDT daily chart. source: Transaction view

Bitcoin (Bitcoin) The above chart is a good example. It shows that after a trader bought the 20-day EMA (entry marked with an arrow) rebounded a few days later, after the price fell below the 20-day EMA and the swing low, the stop loss has been reached The place that has stopped.

This shows that there is no foolproof opportunity to enter, and if the uptrend resumes, traders should be willing to buy again at a higher price.

In all three cases, the price found support near the 50-day moving average and rebounded above the 20-day moving average. This is a signal to traders that the trend has resumed. Usually, this is a good entry point because the stop loss is well defined and the potential profit is high. In all three cases, the transaction proved to be profitable.

FIL/USDT daily chart. source: Transaction view

During the vertical period, the momentum is so strong that the price cannot correct to the 20-day moving average. In this case, if traders wait for entry near the 20-day moving average, they may miss the entire rally.

FIL/USDT daily chart. source: Transaction view

Therefore, when trading coins with a strong vertical rebound, traders can reduce the period of the exponential moving average to 10. In this way, two trading opportunities are opened, which brings a high rate of return risk to traders.

Moving averages as resistance in a downtrend

After the trend turns to a downtrend, the moving averages tend to act as resistance points.

BTC/USDT daily chart. source: Transaction view

Bitcoin’s 2018 bear market is a good example to understand the performance of moving averages in a downtrend. The rebound of each relief measure stopped near the 20-day moving average, indicating that when the price reached this resistance level, the shorts were shorting.

After establishing a downtrend, the price rose above the 50-day moving average twice. Note that before that, the RSI was close to the oversold area, which may have attracted counter-trend traders.

ETH/USDT daily chart. source: Transaction view

In the ether (ETH) In the 2018 bear market, see how prices stayed below the 50-day moving average from June to the end of the year. The relief reverses direction from the 20-day EMA or the 50-day SMA.

Don’t waste time looking for the “perfect” admission opportunity

In most cases, the best entry will fail, and the stop loss order will also be hit. After a series of losses, novice traders are usually discouraged and reluctant to buy at a higher price because they wait to buy a stop loss or a lower stop loss at the same price. Therefore, they missed a large part of the upward trend.

In the bull market phase, after the trend resumes, traders should prepare to buy. Treat each transaction as a new transaction, not just the gains and losses achieved by previous transactions.

Each coin behaves differently, so traders should change the period of the moving average to fit the coin, and then design the entry point accordingly.