Cryptocurrencies: Spotting Opportunity with Moving Average Crossovers
By now, you’re well aware of how to find trends using simple moving averages, such as the 20- and 50-day moving averages. But you should also know how to potentially spot when a trend could stop dead in its tracks, or birth a new trend.
All we have to do is wait for a crossover to do so.
For example, we can spot a bullish “golden cross” when the short-term moving average, such as the 20-day crosses above the longer-term average, such as the 50-day. When this happens, we’ll typically see a move higher in a stock or an index.
Look at Bitcoin Cash (BCH) for example.
Notice what happened in November 2017, as the 20-day began to cross above the 50-day. That was our golden cross that gave way to solid upside. After months of running flat, the moment we saw the golden cross, there was opportunity.
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Of course, relying just on crossover isn’t always safe.
So we always recommend confirming breakouts by waiting to see if the breakout is real. One way to do that is by waiting to see if it gets 2-3 days of higher highs for example.
Or, look at what happened the moment, the 50-day crossed below the 20-day, otherwise referred to as the death cross. The long-term moving average crosses below the short-term moving average in this case.
While a bit late in calling a shift in direction, it confirmed the possibility of lower lows.
In many cases, crossovers are a great way to confirm trends.
However, had you employed Bollinger Bands, MACD, RSI and Fast Stochastic after Bitcoin Cash exploded to $40, you could have spotted the reversal much earlier. In fact, look at what has historically happened with BCH at its upper Band with over-extensions on RSI, MACD and Fast Stochastic. Not long after, we begin to see the crypto pivot and turn lower.
We can see similar patterns in (NEO).
In November 2017, we had a golden cross, which gave way to a rally from $40 to $180. Then, by March 2018, we had a death cross, which was spotted halfway during the pullback. Again, though, had we relied on overextensions to the upper Bollinger Band with oversold reads on RSI, MACD and Fast Stochastic, we could tell with high accuracy when the coin was likely to pivot.
Granted, such technical strategies will not work 100% of the time.
But they’re well worth paying attention to given the frequency of patterns.
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