Application of Double Moving Average

What is a double-moving average?

The double moving average is a combination of two moving averages of different periods. In particular, the longer-term moving average is primarily used to forecast the market trend, but the shorter-term moving average will provide buy/sell signals through interaction with the currency price and the long-term moving average.

Simply explained, the long-term moving average functions as a moving trend line, which is why it is also referred to as a qualitative line. The short-term moving average is referred to as a quantitative line since it is used to decide when to purchase and sell. When the double lines work together, they can assist traders in determining the best time for band operation and position increase/ decrease by paying equal attention to both short-term and long-term trends, allowing traders to better comprehend market movement and make informed investment decisions.

Types of double moving average

Generally, the double-moving average combination can be divided into three types: short-term lines combination, medium-term lines combination, and long-term lines combination. The three types of combination respectively correspond to Dow Theory’s theory on short-term trends, medium-term trends, and long-term trends.

1. Short-term lines combination: the common one is the combination of MA5 and MA30.
2. Mid-term lines combination: the common one is the combination of MA5 and MA60.
3. Long-term lines combination: the common one is the combination of MA30 and MA120.

Use of double moving average

1. Time to buy and increase positions:

   1. When the currency price line goes up to pass the qualitative line and the qualitative line goes upwards, it is time to buy;
   2. When the quantitative line goes up to cross the qualitative line to form a golden cross, it is time to buy;
   3. When the price of the currency falls until it meets the qualitative line, the moment it rebounds is the time to buy;
   4. The qualitative line is in an upward trend, with the currency price running above it. When it goes up to break through the quantitative line, it is the time to buy.
   5. When the quantitative line goes down until it meets the qualitative line, the moment it stops falling and rebounds is the time to buy;
   6. The currency price line, quantitative line, and qualitative line are all moving upward.

2. Time to sell and close positions

   1. When the currency price line breaks below the qualitative line and the qualitative line levels up or takes a turn to go down, it is time to sell.
   2. While the currency price, quantitative line, and qualitative line are all moving upward, and the currency price falls below the quantitative line, it is time to reduce the positions.
   3. When the currency price rises rapidly and moves away from the qualitative line, it is time to reduce positions.
   4. When the qualitative line goes down, it is time to close positions.

Applications

Below is an example of using the combination of medium-term moving averages, MA5 and MA60:

1. When the currency price goes up to break through the qualitative line, and the qualitative line moves upward, it is time to buy. As shown below:

1. When the quantitative line crosses the qualitative line to form a golden cross, it is time to buy. As shown below:

1. The price of the currency keeps falling until it meets the qualitative line, the moment it stops falling and rebounds is the time to buy. As shown below:

1. The currency price, quantitative line, and qualitative line are all moving upward. As shown below:

1. While the currency price falls below the qualitative line, and the qualitative line levels up or takes a turn to go down, it is time to sell. As shown below:

Issues of attention

1. The short-term line combination is of less practical significance in the market when the currency price moves sideways, as frequent trading signals are given in that circumstance but many are false signals.
2. The medium-term moving averages combination is of the most practical value for predicting the movement of the crypto market. Special attention should be given to the combination of MA5 and MA60, which proves to be very effective in reflecting price trends because it combines many advantages of moving averages.
3. The 60-day moving average, as the qualitative line to reflect the medium and long-term trend, can function to indicate the general price trend in most cases. When the 60-day moving average moves upward, it is a signal of the bull market, so investors can consider investing all their available funds to increase their positions.
4. The long-term moving average combination is of less practical value in trading because it works with a lag in indicating and confirming the trend. \

Summary

The double-moving average is a reliable technical strategy that is simple and easy to use in contract trading. It can be a useful tool for contract beginners to assess market trends and improve their chances of ongoing success in the crypto market. Although the double-moving average requires more analysis and judgment skills than the Candlestick charts does, traders can get timely trading signals from a medium-term moving average combination, particularly the combination of MA5 and MA60, and thus make wiser investment decisions than investors who “feel” the market without using any analytical methods.

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Disclaimer

This article is for informational purposes only and does not constitute any investment advice, nor is Gate.io responsible for any of your investments. Content related to technical analysis, market judgment, trading skills, and traders’ sharing cannot be used on an investment basis. Investment may involve potential risks and face uncertainties. This article does not contain or imply any guarantee for returns on any type of investment.