In the first article of our ongoing Technical Analysis series, we introduced you to some of the most commonly used crypto trading indicators: volume, relative strength index (RSI), and simple moving averages (MA). In this article, we’ll go beyond the simple moving averages and highlight more advanced MA indicators, namely:
- Exponential Moving Average - EMA
- Moving Average Convergence Divergence - MACD
While simple moving averages apply the same importance to all historical data points in a given time period, an exponential moving average, or EMA, puts more weight on the most recent price movements. Commonly used timeframes for EMAs are 200 and 50, which have generally proved reliable to find support, resistance, and trend reversals over the long term.
In the example below, you can see how the 200-EMA acted successfully as resistance and the price was rejected at this level. But shortly after, the 50-EMA held successfully as support.
As reactions are stronger to more recent price changes, shorter term traders often leverage EMA’s with the following considerations:
- Price movement above the EMAs is seen as fairly bullish with multiple support levels
- Price moving below the EMAs is seen as bearish, as the asset is facing multiple resistance levels
- The longer the EMA timeframe, the stronger the support or resistance
The Moving Average Convergence Divergence, or MACD, is a trend-following momentum indicator that displays the relation of two moving averages of an asset’s price.
The MACD works by deducting the 26-day EMA from the 12-day EMA. As you can see in the example below, the MACD consists of two lines - blue and a red (green and red by default) - and a histogram, which is displayed in green.
The MACD is used to identify trend reversals or to confirm ongoing trends.
- As long as the blue line is above the red line, the MACD indicates bullishness
- A crossover of both lines in such a way that the blue line is above the red line is considered bullish.
- A crossover where the red line crosses above the blue line indicates bearishness.
The histogram gives you an additional real-time indication of a trend's strength. If the histogram grows higher on the upper end or loses height on the lower end, we assume bullishness. The opposite indicates bearishness.
Technical analysis is an important tool for finding entry and exit points for your crypto assets. In this article, we introduced you to two more commonly used advanced technical indicators: EMA and MACD.
As you continue honing your TA skills, it’s important to note that in isolation most indicators don’t convey a lot of information. Traders are usually looking for confluence between different indicators, and the more they point in the same direction, the higher the likelihood of the indicated price movement to happen.
Quadency's first-class TradingView integration allows you to apply a large number of indicators to create and save your advanced charts. So stay tuned for our follow-up article on more advanced indicators, including Fibonacci-based TA among others.