A simple guide for crypto beginners

Generally, when you notice a sudden increase in the value of cryptocurrencies, you, a crypto trading enthusiast, may feel a strong urge to get into the cryptocurrency market. It’s natural! However, you should be aware that the crypto market is extremely unpredictable, and it is not always wise to trust what you see unless you have the right skills to analyze it. This is where the ability to analyze using trading indicators becomes valuable.

As a beginner, it is not a good idea to start learning about complex indicators that require extensive knowledge and experience. Given your enthusiasm to learn, we can start with a simple one: Moving Averages. What makes this indicator a perfect choice to start with is the fact that it can significantly help you improve your trading skills and can be used in conjunction with other important indicators.

Moving average indicator: the basics you need to know

People generally avoid learning about indicators because they worry that it involves complicated math. But in reality it just requires a certain level of common sense.

Let’s look at the subject of moving averages. It’s like drawing a line on a price chart that shows the average price of something over a certain period of time.

Using Bitcoin as an example, the above explained idea can be easily explained. If you go through the price chart of Bitcoin, you can see how often the price of BTC changes – every day, every minute, every second.

With the support of moving averages, you can easily eliminate the lack of clarity that occurs due to these frequent price fluctuations, as they pick a number, such as 10, 50, 100 or 200, of those fluctuating prices and find the average.

Simple step-by-step guide to analyzing moving averages in TradingView

You should consider a practical approach to better understand the concept of MA. Let’s explore Simple Moving Averages (SMA) using TradingView. Finished?

Here is the step-by-step guide.

Step 1: Open Trading View

Go to the TradingView website and log into your account.

Step 2: Search for a chart

Use the search bar to find the chart you want to analyze, for example “Bitcoin/TetherUS.”

Step 3: Select SMA indicator

Click on the indicator icon at the top of the chart. Type “SMA” in the search bar and select “Simple Moving Average.”

Step 4: Understand indicator settings

In the indicator settings, focus on the ‘input’ section.

Length: This is the number of periods the moving average considers (eg 20 means it looks at the last 20 price points). Source: This is what data the SMA uses, such as open, high, low, close and more; usually “Close” is selected. Offset: This adjusts the SMA backwards or forwards in time. Timeframe: Select the chart’s time frame (eg 1 day, 1 hour)

Step 5: Style and visibility (optional)

Style settings affect how the SMA line looks, such as color and thickness. Visibility settings control whether you want to display SMA lines on the chart.

Step 6: What SMA helps to read

SMA smooths our price date and shows the average price over a specified period. It helps identify trends, as the SMA line moves with the general price direction. When the price crosses above the SMA, it can be a buy signal (uptrend). When the price falls below the SMA, it can be a sell signal (downtrend). SMA can act as a resistance level; when the price reaches the SMA and struggles to move above, it is a potential resistance point.

Chart Selection, Time Frame and Length in moving averages

Chart and Indicator Time Frame Relationship: The most important thing to understand is that the “Time Frame” on your chart and the “Time Frame” setting for the indicator can be different. If you set the timeframe of the indicator to the same as the chart, you get a moving average that matches the chart’s timeframe. For example, on a daily chart, selecting “same as chart” gives you a daily moving average. Different time frame for indicator: You can also choose a different time frame for the indicator. For example, on a daily chart, if you set the indicator timeframe to 1 week, you will have a daily chart with a weekly moving average. This means that although each candle on the chart represents one day, the moving average considers a longer weekly time frame for its calculation. Length and Timeframe Ratio: If you set a length of 9 and a time frame of 1 day, this means that the moving average looks at the average of the last nine days of price data, regardless of whether you are on a daily or weekly chart .

First types of moving averages

By now you’ve probably figured out that understanding moving averages is essential. Calculating them is actually simple, but you need to understand the two main types. In simple terms, there are two types of moving averages: Simple moving averages and exponential moving averages.

Like how you added simple moving averages to your TradingView chart, you can easily add exponential moving averages. The setting section of EMA is almost similar to that of SMAs, but the calculation involved is completely different.

Calculation formulas for SMA and EMA

Once you understand the basic concepts of SMA and EMA, their calculation part becomes easy.

How to calculate SMA

As the theory says, SMA gives equal importance to all prices in a particular range.

Here, ‘A1, A2, ………. An’ represents the closing prices of each day. And ” stands for the chosen time frame.

How to calculate EMA

The theory clearly explains that in case of EMA more importance is given to recent prices.

This requires a significant change in the basic formula.

Here ‘close’ stands for closing price of the current day. ‘Previous day’s EMA’ is the EMA you calculated for the previous day. ‘Selected period’ represents the number of days you are looking at.

In simple words, to find EMA, you start with a previous EMA value (usually the first one is the SMA), and then adjust it based on the latest price.

End note

Getting really good at using moving averages is one of the first steps for someone interested in crypto trading. Although it is a simple tool that provides limited information on its own, it becomes incredibly powerful and accurate when you team it up with other indicators. It can be considered as a building block to get better at technical analysis in crypto trading.