Moving Averages

Moving averages bring clarity to the volatile mess crypto-traders are cursed by. They’re the simplest of all the indicators, and you’ll see them on pretty much every trader’s TA setup.

ETHBTC 1h chart on TradingView, with a blue 100 period simple moving average.
100-period Simple Moving Average (blue) traced over ETHBTC chart on TradingView

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Key points on moving averages

  • Moving averages are the most popular indicator
  • They are lagging indicators
  • They help smooth out price changes
  • They are great for identifying trend
  • They are perfect for building base simple trading strategy on
  • There’s quite a broad spectrum of moving averages (as you’ll soon discover)

What are moving averages?

While they’re seemingly simple to read, it’s best you just confirm you understand what’s happening when you see them.

  • Moving averages take the average price of the last n candles
  • The n is called the ‘period’ — for example, ‘100 MA’ is a 100-period moving average, it takes the average close price of the last 100 candlesticks.
  • As new candlesticks form, the period window moves forward and takes the average price.

The different types of moving average

Yep, there’s a few different types of moving average. They all serve somewhat the same purpose. But, you’ll find some moving averages are more receptive to price movements than others.

Simple moving average

The simple moving average, or ‘SMA’, is unironically the simplest moving average of them all. They simply take the average close price over the last n candlesticks.

100 period simple moving average ethbtc
The blue moving average line clearly shows the trend is bullish (moving upwards). Source: TradingView

Weighted moving average

The weighted moving average, or ‘WMA’, is where things get a bit more complex.

100-period weighted moving average and simple moving average on ETHBTC, TradingView
Weighted moving-average (red); Simple moving-average (blue); traced over ETHBTC on TradingView.

WMAs use a ‘weighting multiplier’ on the candlesticks’ price data. Newer price data is favoured over earlier data. Giving a more accurate depiction of the average change in price.

Exponential moving average

The exponential moving average, or ‘EMA’, favours newer data over later data — similar to the weighted moving average.

100-period exponential moving average, weighted moving average and simple moving average on ETHBTC, TradingView
100 EMA (green), 100 WMA (red), 100 SMA (blue); traced over ETHBTC on TradingView.

Exponential moving averages use ‘exponents’ that create a ‘weighting curve’. The curve tends to favour earlier data over later data. Different EMAs will use different ‘exponent functions’. Some functions are more weighted towards earlier data than others.