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3 Ways Traders Use Moving Average to Read Market Speed

The first step to successful trading is the identification of medium and short-term trends. Traders who stay on the right side of the trend and use risk management principles typically make profits. An equally important activity in the trading process is counting entry.

Many times, traders are afraid to pull the trigger at the optimal moment and miss a large part of the rally. As they see the market move up from the edge, the desire to buy keeps increasing and many times, they shop near the top.

To avoid such mistakes, it is important to design an easy system for shopping. Every trader wants to buy at low and sell at high, but this is easy to do. Instead, traders should focus on capturing a large portion of the rally by taking the least possible risk. Let us know some easy strategies to do this.

Trading in a limited market

Although price action is volatile and random in a range-bound market, it can still be traded. If the boundaries are too tight, it is better to sit on the sidelines than try to take a choppy price action.

ADA / USDT Daily Chart. Source: Trading view

On the other hand, if the range is well defined and large as in the example above, traders may try to trade it. The simplest way is to buy on rebound with support and book a profit with the range’s resistance. For such trades the stop can be placed just below the support of the range.

The larger the number of touches on both the support and resistance of the range, the better it is to trade because the probability of a whipsaw is less. Typically, every bounded action is followed by a strong bullish or bearish move. So when the trend changes, traders should change their trading strategy accordingly.

How to shop in the bull market using moving averages

After the bull trend begins, the asset continues to rise higher and higher. Traders who wait to shop at a significant correction miss the bus. Therefore, when the trader identifies a 20-day exponential moving average and a 50-day simple moving average, it is time to look for an entry opportunity.

BNB / USDT Daily Chart. Source: Trading view

Currency coin (Bnb) Began its uptrend in February when the moving average slope began and the Relative Strength Index (RSI) remained in the overbought area.

Once the trend is established, traders should wait for a low-risk opportunity to buy. In an uptrend, the 20-day EMA serves as a strong support. Therefore, traders can wait for a price drop and rebound from the 20-day EMA before purchasing. This allows for low-risk buying as the stop-loss can be placed just below the 20-day EMA or swing low.

In the chart above, ellipses are used to mark the points where traders could buy. The price fell to the 20-day EMA on six occasions, which could have been a good entry point. However, a stop could be hit on any one trade.

On 25 March, the price broke below the 20-day EMA, and on 16 March a swing low was created. This could have affected short-term traders’ stops. However, the bears could not maintain the price below the 20-day EMA as the bull bought a fall in the 50-day SMA.

On March 27, the price rose sharply above the 20-day EMA, indicating a restart of the uptrend. In such cases, traders can either buy above the 20-day EMA or at the most recent swing high because it indicates that the bulls are back in command.

Let us examine some more examples.

BTC / USDT Daily Chart. Source: Trading view

Bitcoin (B T c) The chart above is a good example of how traders buying a bounce from a 20-day EMA (entries marked using arrows) may have hit their stop just a few days later because the price was a 20-day EMA and a swing low. Was broken below. Where stopages would have been placed.

This suggests that there is no full-proof entry opportunity and that traders should be prepared to buy again at higher prices if the uptrend resumes.

In all three cases, the price drew close support to the 50-day SMA and rebounded above the 20-day EMA. This was an indication to traders that the trend has resumed. This is generally a good entry point because the stop-loss is well defined and the probability of gain is high. On all three occasions, the business turned profitable.

FIL / USDT Daily Chart. Source: Trading view

During vertical rallies, the momentum is so strong that the price does not hold true for a 20-day EMA. In such cases, if traders continue to wait for entry to the 20-day EMA, they may miss the entire rally.

FIL / USDT Daily Chart. Source: Trading view

Therefore, when a strong vertical rally is seen in trading coins, traders can reduce the exponential moving average to 10. By doing this, two entry opportunities open up, giving traders a good exposure to reward ratio.

Moving average as resistance in downtrend

After changing the direction of the trend downtrend, the moving average acts as points of resistance.

BTC / USDT Daily Chart. Source: Trading view

The 2018 bear market of bitcoin is a good example to understand how the moving average behaves in a downtrend. Each relief rally halted near the 20-day EMA, indicating that bears were depreciating when prices reached this resistance level.

After the downtrend was established, twice the price rose above the 50-day SMA. Note that before this happened, the RSI fell close to the oversold area, which may have attracted counter-trend traders.

ETH / USDT Daily Chart. Source: Trading view

In etherETH) See how the bear market during 2018 remained below the 50-day SMA from June to the end of the year. Relief rallies are reversed with either a 20-day EMA or a 50-day SMA.

Don’t waste time looking for the ‘best’ entry opportunity

Most of the times, even the best entries fail and stop loss orders are hit. After experiencing a series of losses, novice traders often get frustrated and do not shop at a high level as they wait to shop at the same level that their stop was hit or low. Because of this, they miss a large part of the uptrend.

In the bull phase, traders should be ready to buy when the trend resumes. Treat each trade as a new trade and do not decide on the profit or loss gained on the previous trade.

The behavior of each coin is different, so traders should change the period of moving average to correspond to the coin and then design the entry point accordingly.