Undoubtedly, Moving averages (MA) are the most famous trading tool. It will be a tremendous profit-generating machine if you know how to utilize it properly. But in most cases, traders trade using MAs they make some serious mistakes.
This article will discuss your needs in selecting the category and the extent of the perfect MA, along with the three approaches to utilizing MAs regarding decision-making for trading.
What is the crypto-adjusted moving average?
Market analysts and investors may apply an MA technical indicator while identifying the trend direction. It adds up the digital asset’s data points during a specific period, and the total is divided by the number of data points for calculating an average.
Analysts exploit the crypto-adjusted MA to identify support and resistance by assessing the price movements of a certain digital asset. Also, an MA depicts a digital asset’s past price action/movement. However, based on the newest price data, it constantly recalculates; therefore, it is referred to as a “moving” average.
Top five tips for trading with crypto adjusted moving average
Since you already have an idea of the crypto-adjusted MA trading indicator, why not proceed on to knowing how to utilize the indicator for trades as a master.
Tip 1. Going long
A crypto-adjusted MA helps traders to identify the current market trend. When looking for a long setup, you should first identify the bullish trend. If the MA resides below the price and the price is making higher highs and higher lows above it, the current trend is bullish; you can take a long position.
Why does it happen?
MA shows the market momentum based on the period you have set on it. When the price resides over the MA, it tells you the market is on a bullish trend. Therefore, you can open a long trade when the price returns to the MA and has a bullish close above it. Or else, you can go for a long when the price breaks over the higher high after retracing back to the MA.
How do you avoid the mistake?
The crypto market is full of uncertainty, so it is always better to have the proper trading plans. Only go for long trade when the price resides above the MA. If the price resides below the MA, do not think of going for a long trade.
Tip 2. Going short
When looking for a short setup, you should first identify the bearish trend. If the MA resides above the price and the price is making lower lows and lower highs below it, the current trend is bearish; you can take a short position.
Why does it happen?
When the price is residing below the MA, it tells you the market is on a bearish trend. So, you can open a short trade when the price retraced back to the MA and had a bearish close below it. Or else, you can go for a short when the price breaks below the lower low after retracing back to the MA.
How do you avoid the mistake?
Only go for a short trade when the price resides below the MA. If the price resides above the MA, do not think of going for a short trade.
Tip 3. Using a stochastic oscillator with a moving average
You can use other indicators like a stochastic oscillator with the MA to identify the better accuracy trades. It can also help to avoid false signals. For instance, when the MA indicates a bullish trend, the stochastic oscillator has a bearish crossover above the 80. It indicates that the price may retrace to the downside; you should not open a long trade now.
Why does it happen?
There is no surety that the crypto-adjusted MA is better than the other indicators. Therefore, you should always use other indicators like stochastic oscillators to identify the proper entry and exit points.
How do you avoid the mistake?
To avoid the mistakes, always try to have the other indicator’s confirmation along with the crypto-adjusted MA.
Tip 4. Money management
Money management is a financial strategy for determining the investment approaches of a trader in various cryptocurrencies. It helps traders identify when to enter into a trade, how much the buying volume should be, and when they should take an exit and close the day. Money management is the support system for playing smoothly during the market pressure. It also helps to learn self-restraining and indulgence.
Why does it happen?
Due to the volatility and uncertainty of the cryptocurrency, it potentially will take no time to lose your entire investment. So, it would help if you executed a rigid limit. While trading the volatile assets, your taken risk should be around 1-2% money of the entire investment for a particular trade.
How do you avoid the mistake?
Money management depicts the risks involved in executing a particular trade and related profits and losses. Managing the associated risk management means holding the correct position, acknowledging how to put and move to stop losses, and paying heed to the risk-return ratio.
Tip 5. Choose when not to trade
It is an essential strategy to choose when to trade and when to withdraw. It happens mostly with novice traders as they become confused and lose trades consecutively. Then they panic, which takes them to several more wrong trades, ultimately to the losses.
Why does it happen?
Traders must be watchful and make sure to keep away from overtrading. Overtrading occurs when many positions are open or by risking the capital disproportionately for a single trade.
How do you avoid the mistake?
An uncompromising trading plan is crucial to avoiding over-trading. The trader must follow the calculated strategy with discipline. Most newbie traders are scandalous for over-trading due to failing to manage their emotions.
Final thought
To conclude, instead of producing trading signals, the crypto-adjusted MA is primarily utilized for determining the trend of digital assets because of being a lagging indicator. However, traders should use the MA as a combination with different technical tools resembling the other indicators. In this case, price action or momentum indicators may be the best match to go along with a crypto-adjusted MA.
