What is a moving average?
Moving average, professionally known as 'moving average line', isn't that complicated. It's simply the average of the closing prices (like coin prices) over the last N days, connected into a line. In simple terms, it reflects the average holding cost and price trend in a given period, telling you whether it's a bull or bear market.
What are the commonly used moving averages?
MA5: average cost of the last 5 days, roughly one week.
MA10: average cost of the last 10 days, about two weeks.
MA20: average cost of the last 20 days, about one month.
MA60: average cost of the last 60 days, one quarter.
MA120: average cost of the last six months.
MA250: average cost of the last year.
Divided by time:
Short-term: MA5, MA10
Mid-term: MA20, MA60
Long-term: MA120, MA250
When we talk about 'weekly line', we mean MA5; 'monthly line' is MA20; 'half-year line' is MA120; 'annual line' is MA250. Remember?
The three major uses of moving averages, mastering them means profit!
1. Look at the trend and its strength
Moving averages can tell you where the market is headed and how strong it is.
When the moving average tilts upward: average cost is rising, bulls have the upper hand, and the trend is upward. It's suitable to hold coins or find low points to increase positions.
When the moving average tilts downward: average cost is decreasing, bears are pressing down, and the trend is downward. Be cautious, don't rush in blindly, and quickly set stop losses if you already hold.
When the moving average moves sideways: the trend is unclear, and the price is fluctuating within a range, with bulls and bears at a standoff. Focus on observing or engaging in small high-low trades.
How to assess the strength of the trend?
Strong upward trend: short-term to long-term moving averages are lined up from top to bottom (MA5 > MA10 > MA20 > MA60), indicating a bullish momentum.
Strong downward trend: conversely, from long-term to short-term (MA60 > MA20 > MA10 > MA5), indicating bears completely controlling the market.
Volatile market: short and long-term moving averages are tangled together, messy with no direction.
How to use it in practice?
When the moving average is arranged upward, don't panic holding; you can buy on a pullback to the moving average.
When the moving average is arranged downward, primarily exit; reduce positions on rebounds.
When the moving average is flat, hold cash and observe, or play small positions for short gaps.
2. Find support and resistance
Moving averages can also act as 'floors' and 'ceilings'.
Support: when the price drops to the vicinity of a certain moving average and stops, then rebounds, that moving average is the support.
Resistance: when the price rises to a certain moving average and gets stuck, then turns back, that moving average is the resistance.
Why does this happen?
Moving averages represent average cost, like MA20 being the cost line for the last 20 days. When the price drops to this level, holders don’t want to sell at a loss, while outside buyers find it cheap and start bottom fishing, pushing the price up. When it rises to a certain level, those making profits fear a drop and quickly exit, while outsiders dare not take over, pushing the price down.
Which moving average to choose?
Ultra short-term: MA5, MA10
Swing: MA20, MA60
Long-term: MA120, MA250
How to operate?
The price stands above the moving average, if it pulls back and does not break, buy; if it breaks, sell.
It's best to look at several moving averages together, such as MA5, MA20, and MA60 all going up, indicating a strong bullish trend. Buying on a pullback is more reassuring.
Beginners, don't mess around: touching a coin in a downtrend carries high risk. In an uptrend, enter at each pullback to the support level; it's as steady as an experienced trader.
3. Capture buying and selling points with golden and dead crosses.
Golden cross: when the short-term moving average (like MA5) crosses above the long-term moving average (like MA20), it's bullish in the short term, signaling a buying opportunity.
Dead cross: when the short-term moving average crosses below the long-term moving average, it's bearish in the short term, indicating a selling opportunity.
For example:
When BTC was at 80,000, MA5 crossed above MA20, a golden cross appeared, and the trading volume increased a bit. When it rose to 85,000, buying near the golden cross was the right move.
When ETH was at 25,000, MA5 crossed below MA20, a dead cross appeared, and the trading volume decreased. When it fell to 23,000, selling near the dead cross was fine.
What should you pay attention to when using it?
Choose golden crosses in upward trends; the signals are reliable. Golden crosses in downward trends may be false.
Look at trading volume: increased volume with a golden cross is stronger; decreased volume could indicate a false breakout; increased volume with a dead cross requires caution, while decreased volume may indicate a washout.
Avoid these pitfalls when using moving averages.
Moving averages have a lag: don't just focus on them; use them in conjunction with KDJ and trading volume for accuracy.
Choose the right time frame: use MA5, MA10 for short-term, and MA60, MA120 for long-term; don’t mix them up.
Assess the market environment: use mid to long-term moving averages for trending markets, and short-term moving averages for volatile markets, aiming for quick in-and-out.
Don't use too many: 2-3 lines are enough; too many signals can be messy.
Beginners should not go against the trend: only trade coins in an upward trend, avoid touching those in a downward trend to prevent losses.
Stop loss is the most important: no matter how good the strategy, without a stop loss it’s useless; discipline is stronger than anything.
Finally, a few words
Trading should be as simple as possible; complicating things doesn’t guarantee profit. Some lose heavily using a bunch of indicators, while others steadily profit using moving averages. The key is not the strategy, but the discipline. Moving averages are not magic; they are tools to help you see trends, find support and resistance, and give you a standard for action. But how well you use them depends on you, whether you can control your hands and manage your emotions.
Thanks to Brother A9 for sharing valuable insights; let's improve together! Practical suggestion: BTC now (pretend it's June 14, 2025) is at 82,000, MA5 (81,000) just crossed above MA20 (80,000), a golden cross has appeared, and trading volume is decent. Short-term can reach 85,000; set a stop loss at 79,000. Brothers, the opportunity has arrived, let's go for it!