Interpreting Market Trends with Moving Averages: A Guide to Utilizing Monthly and Quarterly Averages

What is Moving Avarage? Understanding the Calculation Method

In analyzing the cryptocurrency market, it is important to utilize technical indicators in addition to fundamental analysis (such as project growth potential and profitability) to predict price movements.

Among technical indicators, moving averages such as weekly (weekly), monthly (monthly), and quarterly (quarterly) moving averages are very helpful in determining entry and exit points. This article will provide a detailed explanation of how to interpret moving averages and how to use them to improve investment strategies.

In simple terms, these moving averages of different time frames help to roughly grasp the average purchase cost of cryptocurrencies over a certain period in the past.

Based on the number of trading days, 1 week consists of 5 trading days, 2 weeks consist of 10 trading days, 1 month is approximately 20 trading days, and 1 quarter corresponds to about 60 trading days. The moving averages calculated based on these periods can be classified into short-term, medium-term, and long-term.

Category:

• Short-term: 5 days (week), 10 days (2 weeks)
• Medium-term: 20 days (monthly), 60 days (quarterly)
• Long-term: 120 days (half a year), 240 days (year)

For traders focusing on short-term trading, the 5-day and 10-day Moving Averages are useful references. On the other hand, for traders who prefer medium to long-term trading cycles, Moving Averages with a period of more than 20 days become more valuable indicators.

How to Read and Utilize Moving Averages

These period Moving Averages are typically used in combination. Traders can assess the strength or weakness of the current price based on the relationship between the candlestick chart and each Moving Average.

Utilizing Golden Cross and Dead Cross

When discussing the timing of buying and selling cryptocurrencies, the terms "Golden Cross" and "Dead Cross" are often heard:

• Golden Cross: Refers to the short-term Moving Average crossing above the long-term Moving Average from below. This indicates that the strength of short-term buyers is strong and many market participants are in a state of profit. It is considered a sign of an upward trend and serves as a buy signal.

• Dead Cross: Refers to the short-term Moving Avarage crossing below the long-term Moving Avarage. This indicates that the short-term sellers are strong, and many market participants are experiencing losses. It is considered a sign of a downward trend and serves as a sell signal.

Optimization of Investment Decisions Using Moving Averages of Different Periods

In addition to golden crosses and dead crosses, moving averages have various arrangement patterns:

Bullish Alignment (Golden Alignment):

All period Moving Avarage lines are curved upwards and arranged from short-term to long-term in order from top to bottom. When a bullish arrangement appears, it indicates that the price is in a bullish trend, and it usually means that the price has completed its adjustment and a rising trend is about to begin. This is an aggressive buy signal.

Bearish Alignment:

The moving averages for all periods are curved downward and arranged in order from long-term to short-term, from top to bottom. When a bearish arrangement appears, it indicates that the price is in a bearish trend, which usually means that the price is continuously declining. This increases the likelihood of continued decline, serving as a sell signal.

Horizontal Consolidation:

When all Moving Averages are aligned in parallel, it indicates that the strength of buyers and sellers is balanced. Traders need to carefully observe the next movement of the market.

Tangled Consolidation (Range Market):

The state where the Moving Avarage lines are intertwined indicates a conflict of views between buyers and sellers, resembling a tug-of-war situation. The market needs positive or negative news to find its next direction.

Limitations and Precautions of Moving Averages

1. Lagging:

These indicators are calculated based on past prices, so they react slowly when trends change. As a result, investors may not be able to capture trend reversal points in a timely manner and could miss optimal buying and selling opportunities.

2. Impact of short-term price fluctuations:

In the cryptocurrency market, the prices of Bitcoin and Ethereum can fluctuate significantly due to sudden events. In such cases, Moving Averages may generate false signals and mislead trend judgments. Special caution is required when using indicators such as monthly and quarterly lines around the release of important economic indicators or events.

3. Changes in Effectiveness Due to Market Conditions:

The cryptocurrency market is characterized by high volatility compared to traditional financial markets. Therefore, depending on the market environment, it becomes possible to conduct more accurate market analysis by combining it with other technical indicators such as RSI (Relative Strength Index) and Bollinger Bands.

Practical Approach Using Technical Analysis

When utilizing Moving Avarage, it is more effective to consider the following points:

• Check Across Multiple Time Frames: It is important to conduct chart analysis across different time frames such as daily, weekly, and monthly to have a more comprehensive view of the market.

• Confirming Support and Resistance: In major cryptocurrencies, important Moving Averages often serve as support or resistance. In particular, the 200-day Moving Average of Bitcoin has become a significant indicator.

• Identifying False Signals: Especially in a high volatility environment, a cross may occur and then immediately reverse. Confirming signals requires a combination with other indicators and verification of price movements.

Moving Avarage is a fundamental and important tool in cryptocurrency market analysis, but it is just one of the analytical methods, and it is essential to consider other factors to make comprehensive judgments.