#TradingTools101 Moving Averages - Two Simple Ways to Use Them
We will use two moving averages of 50 and 200 days.
1. Convergence, divergence, crosses. The position of the averages shows you the market sentiment. If the short-term average (50) crosses above the long-term average (200) - it predicts a price increase. Conversely, if it crosses below, it indicates a decrease.
This moment should not be taken too literally. Moving averages are a lagging indicator; if we see a crossover on the chart - the price has already risen or fallen. Therefore, it is better to look ahead - if the averages are diverging - the trend is strong; if they start to converge - a reversal may occur.
2. Averages often act as dynamic support or resistance. If there is such a line in the price's path, the price may at least pause at it. It may also reverse, bouncing off it. Keep this in mind when placing limit orders.
Example - Bitcoin chart:
