Usefulness of the EMA indicator
Entering the world of trading and technical analysis, many cryptocurrency traders employ moving average tools for multiple purposes, based on their stated goals. However, it is important to note that when making decisions to make an investment, EMAs are variable tools that must be used and combined with other instruments. In order to look for a greater probability of success in the operations carried out.
One of its most frequent uses is as an indicator in a breakout strategy. If we have a breakdown system with trend tracking with the Bollinger Bands and the EMA, we can use the bands to generate the trading signals. Since these will draw lines on the graph above and below the price. In the event that the price crosses the upper line, we will interpret it as a trading signal in that direction. Where the EMA, which acts as a trend indicator, must also coincide with the same direction.
Another very effective trading strategy is known as Exponential Moving Averages Crossing. That is to use the combination of two exponential moving averages, one for the short term and one for the long term. In this strategy, a signal is created when the shortest moving average crosses the longest moving average from the bottom up. This signal is called long position, and is taken as a buy signal in a bull market. Whereas if the longest moving average crosses the shortest moving average from top to bottom, it is called short position, and reflects a sell signal in a downtrend market.
However, as well as the previous examples, there are many other combinations that we can implement with this great tool. That not only helps us confirm a trend, but also helps us define when we can trade. Increasing our possibility of obtaining profits and reducing possible losses.