The moving average is a technical indicator that shows an average price on the basis of specific numbers of recent candles.
The moving average is calculated by adding a crypto coins price over a certain period of trade divided by the sum of total number of periods.
Traders use the SMA(simple moving average) indicator to enter or exit the market. It can be computed for different types of prices, i.e., high, low, open, and close.
For example a trader wants to calculate the Simple Moving Average for a crypto coin $Dot by looking at the days of its High time price with five days.
For example the last five days high prices were $30.90 , $26.01 , $28.40 , $31.80 and $27.50
Now by adding all the above high prices and divide them by the total number of periods/days.
Total No of high prices ÷ Total No of days = SMA(simple moving average)
( $30.90+$26.01 + $28.40 +$31.80+$27.50 ÷ 5 = $28.92).
Now from the above calculated price we have come to know that if the current price is above the calculated price it means the market have potential and the market will go high and if current price is below SMA price it means market have no potential and it may move further downside.
Here are the six types of Moving Averages
1)Simple Moving Average (SMA)
2)Exponential Moving Average (EMA)
3)Weighted Moving Average (WMA)
4)Double Exponential Moving Average (DEMA)
5)The Triple Exponential Moving Average (TEMA):
6)Linear Regression (or) Least square Moving Average
The above six types of Moving Averages if calculated will come as under mentioned numbers;
1- 5 EMA
2- 10 EMA
3- 21 EMA
4- 50 SMA
5- 100 SMA
6- 200 SMA
Now let’s discuss them one by one;
5 EMA ---> Tells how strong is the momentum of the market. Whenever there is a Strong uptrend in the market 5-EMA work as support. If the price of a coin comes down and hit 5 EMA price level and then go up, it means there is a strong momentum in the market or a specific coin. If 5-EMA support level is broken and price goes more down it means strong momentum is about to end.
10 EMA --->Act as a guard and will tell your current position where you stand if price is above or on 10 EMA it means you are safe and if it is below 10 EMA then it means you are at a risk.
21 EMA ---> It is the final support line for any crypto coin market trend. If 21 EMA support is broken,it means that you should exit the market as soon as possible because the market could go more down.
50 SMA ---> is a support level when there is uptrend in the market.
100 SMA --> It is important support level stand between 50SMA and 200SMA which determines risk and return ratio.
200 SMA --> If price of a coin breaks all the SMA and EMA support levels then it will come down to 200 SMA and if 200 SMA level is broken a bear zone starts.