Applying Simple Moving Averages to your Crypto Trading Strategies

Here we explain Simple Moving Averages and how you can use them as technical indicators for your crypto & token trading strategies.

Applying Simple Moving Averages to your Crypto Trading Strategies

Cryptocurrency markets have been moving sideways for the past few weeks, prompting people to start sitting on the edge of their seat & refreshing their portfolio page repeatedly. And despite the overall gloomy bear feel that has followed us out of 2018, we have seen a couple of positive developments with Bitcoin holding above $4000 & shooting over the $4700 during the night - for now.

This has seemingly prompted many figures to announce it is #ALTSEASON on twitter, a sentiment that appears to be confirmed by Google Trends:

The general consensus seems to be that the market will move into a recovery period during the early fourth quarter of 2019 - just look at Arthur Hayes the CEO of BitMex predicting Bitcoin will return to the $10,000 price point during this year. Definitely a sentiment I can get behind, though I think the $7,000-$8,000 mark by the end of the year is more realistic.

So what to do while we wait and watch?

Time to brush up on our crypto technical indicators and understand what sort of analysis we can use to improve our crypto trading. Due to the volatile nature of cryptocurrency markets, I much prefer to keep any technical analysis simple - many financial analysts will tell you one of their most prominent technical indicators for trading bitcoin will be Moving Averages (MA). But does that work for trading token markets? Let's find out.

Simple Moving Averages (SMA)

What Are Simple Moving Averages?

Calculating the Simple Moving Average of a token is very simple, you should not be afraid to bring this indicator into your trading repertoire & understand what trends it can spot for you. Just add up the recent closing prices of an asset and then divide it by the number of days in your chosen time range. For example, to calculate an asset's five-day SMA:

( Closing price day 1 + closing price day 2 + ... + closing price day 5 ) / 5 = Asset's five-day SMA.

The idea behind this analysis is that it removes the volatility and lets you see the coin or token's current trend. You can set up your moving averages to be short-term or long-term.

Short-term moving averages will respond quickly to changes in the price of an asset. Whereas, long-term averages will react at a much slower pace and let you see the overall trend of a token's price.

How to use SMAs to trade tokens for a profit?

By using these averages, you can help spot price trends and then use those trends to turn a profit when trading tokens. Of course, you need to find a token marketplace where the orderbook has enough depth & activity for this analysis to make any sense - where trading activity is rare it will not be very helpful. For example, first you could calculate Saturn Classic's five-day SMA and then compare it to Saturn Classic's 8-day SMA to try and spot trends. Should the token's five-day SMA crossover (surpass) its 8-day SMA then that is an indication that the market is bullish towards Saturn Classic & its price will be rising.

If you believe the trend will continue, then you would be able to generate a profit by buying into Saturn Classic at this point. However, we have to note token markets are very volatile so it can definitely help to confirm the market is indeed bullish before you buy in. You could do this by setting up a long-term SMA also, for example if a 8-day SMA crosses over a 12-day SMA then it would be an additional confirmation that the market is bullish. Or look at outside factors: is the market bullish on Ethereum Classic or Bitcoin? What announcement's has the team made recently? All things you can think about before making a decision.

Is trading a token's Simple Moving Averages a good strategy?

They are definitely very strong indicators for spotting market trends, it just comes down to your ability to read the trend correctly. Let's look into it further with examples from recent Saturn Classic trading over the month of March:

  • Crossover point A: Our five-day SMA crossed over both our 8-day & 12-day SMA around the 12th March. For the next few days we saw the market was pretty bullish on Saturn Classic, trading above 0.000065 ETC and the price rose up to the March's all time high of 0.000075 ETC.
  • Crossover point B: On the 15th March, Saturn Classic's price started to trade under 0.000065 ETC, which seemingly was a trigger to sell & we can see this reflected in our five-day SMA crossing over again but this time in the opposite direction. This downward momentum continued until the 20th March, where we can see the market started to recover itself at around the 0.00004 ETC mark.  
  • Crossover points C: On the first two crossover points, we see that our five-day SMA has once again crossed over our 8-day & 12-day SMA. This could be seen as a trigger to buy, but you also have to note that the price has not yet recovered back to crossover point B, so we cannot really call it a bullish trend & it could be a risky move. That's up to you to decide how big of a risk you take when entering a market. On the last crossover point I have circled, it looks like everything is going to recover but the upward momentum quickly stops. This is where you have to make sure you are also following a coin or token's announcements - with the upcoming Saturn Classic's HODL dApp launch traders know there will be an opportunity to buy at a fixed price.

All in all calculating Simple Moving Averages can definitely help you make more profitable trades when deciding to enter & exit token markets. Of course, the real winner is when you can automate these trading indicators. This will allow you to spend more time researching a token and following its announcements which will help you confirm if a market's bullish or bearish trend is correct - instead of spending your time charting manually. Which is why providing an easy solution for Automated trading analysis & indicators is one of the milestones on our development plan.

Hope you enjoyed learning about Simple Moving Averages and how you can apply them to your token trading strategies. I am planning to go over some more trading indicators in the future such as Relative Strength Index (RSI) so make you don't miss out by subscribing to our newsletter, following our twitter and joining our forum.

Happy trading!