Beginner’s Guide Part 1
Basic Exponential Moving Average
An Exponential Moving Average is usually used to measure the trend direction over a period of time. Identifying a trend in a chart is crucial in trading, you don’t want to trade against the trend because it will hit you hard. You have to learn to be friends with the trend so you can profit in the long run.
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So let’s say you’ve added the EMA indicator to your chart, it might not look exactly like the picture above because there are some settings you need to tweak. The chart above is BTC/USDT pair 1 Hour chart, you can see on the chart I’ve added 3 EMA. The RED colour EMA Length has been set to 10, the BLUE colour EMA Length is 100, and the last YELLOW colour EMA Length is 200. You can change the colours as your preference, be sure that you can differentiate each Length.
You can find a bunch of other settings online, but I found that this setting is more suitable for my trading style. The lower Length you set, the nearer it will follow the price candle.
How to use Exponential Moving Average in your trading?
When the RED colour EMA is above the BLUE & YELLOW colour EMA, it means the trend is going UP, so it is better to make a LONG trade. As an example, you can see in the picture above the pink colour circle I’ve pointed out. So if you place a LONG trade when this happens you might have ridden the trend and potentially earn some profit. To double confirm the uptrend, make sure the BLUE colour EMA is also above the YELLOW colour EMA.
On the flip side, if the RED colour EMA is below the BLUE colour EMA and the YELLOW colour EMA, that means the trend is starting to flip downwards, it is better to make a SHORT trade. This is just one of the basic ways to identify the market trend, you can include other trend indicators to double confirm the trend before you make a trade to avoid a choppy market.
Support and Resistance with Exponential Moving Average
In a downtrend, the EMA can also act as a Resistance, you can see the price rejects from the BLUE colour EMA on the picture above. Usually, in a downtrend, we will only place SHORT trades if the price could not break above the EMA resistance.
On the flip side, during an uptrend, the BLUE colour EMA act as a Support, you can see the price bounce above the BLUE colour EMA like a bouncy ball in the picture above and make new highs. Usually, in an uptrend, we will only place LONG trades if the price stays above the EMA support.
If you don’t understand Support and Resistance well, click here for the basic S&R article.
DISCLAIMER: This is just a very basic tutorial that teaches you how to use the indicators and is not financial advice. This article is for educational purposes only, please use it at your own risk. The cryptocurrency market is very volatile and unpredictable. Crypto Brothers will not assume any liability for direct or indirect losses.
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