Guide to Using EMA in Cryptoasset Trading

Background of the Need for EMA

In the world of technical analysis, tools that accurately capture market movements are in demand. The Exponential Moving Average (EMA) serves as an important indicator that meets this need. Unlike the traditional Simple Moving Average (SMA), the EMA places greater weight on the latest price data, allowing it to more sensitively catch turning points in the market.

EMA Utilization Strategy in the Cryptocurrency Market

In cryptocurrency trading, the use of ema varies widely.

Determining Trend Direction

The direction of the EMA itself serves as an important source of information. When the exponential moving average is rising, it suggests the formation of an upward trend, while a decline indicates a transition to a downward phase. This straightforward criterion is adopted by many traders.

Utilization of Crossover Signals

A method that combines two different periods of Exponential Moving Averages (EMAs), such as a short-term EMA (for example, 10 days) and a long-term EMA (for example, 50 days), is widely used. When the short-term EMA crosses above the long-term EMA from below, it acts as a buy signal, while conversely, when it crosses below from above, it serves as a sell signal.

Price and EMA Cross Points

There is also a method to focus on the point where the market price itself intersects with the EMA line. If the price breaks through the EMA from below to above, it is considered a buying opportunity; if it falls from above to below, it is judged as a selling opportunity.

Improving Credibility with SMA Combination

By using both the Simple Moving Average (SMA) and the Exponential Moving Average (EMA), you can reduce false signals. Since the EMA is more responsive to short-term price fluctuations, it can sometimes produce misleading signals. However, if a signal generated by the EMA can also be confirmed by the SMA after several periods, the reliability of that signal greatly increases.

Calculation Mechanism of EMA

The Exponential Moving Average is calculated using the following formula:

EMA = (Close Price - Previous EMA) × Multiplier + Previous EMA

The following factors are important in calculations.

Definition of Closing Price

It refers to the last transaction price during the target period (in this explanation, one day). If it is a daily chart, it will be the daily closing price of the candlestick. If the business hours of the day have not yet ended, the closing price of the previous business day will be used as an alternative value.

The Role of the Previous EMA

Refers to the EMA value of the previous period. If the EMA of the previous day does not exist, the simple moving average (SMA) is calculated first and set as the initial value.

Multiplier (Smoothing Constant)

multiplier = 2 ÷ (n + 1)

This is calculated with this formula. n is the number of periods to be used, and this value determines the weight distribution.

Specific Calculation Example

I will explain the calculation flow using the 10-day EMA as an example.

Step 1: Calculation of Initial SMA

Assuming the closing prices from day 1 to day 10 are 50, 57, 58, 53, 55, 49, 56, 54, 63, and 64 respectively.

SMA = (50 + 57 + 58 + 53 + 55 + 49 + 56 + 54 + 63 + 64) ÷ 10 = 55.9

This 55.9 will be the initial EMA value.

Step 2: Determining the Multiplier

Multiplier = 2 ÷ (10 + 1) = 2 ÷ 11 ≈ 0.1818

Step 3: Calculation of EMA Value

The EMA calculation based on the closing price of 60 on the 11th day is as follows.

EMA = (60 - 55.9) × 0.1818 + 55.9 = 56.64

This 56.64 will be the EMA value for 10 days and will function as the previous EMA value in the calculation for the next trading day's EMA.

The Fundamental Difference Between EMA and SMA

The Simple Moving Average (SMA) gives equal weight to the closing prices of all periods, while the Exponential Moving Average (EMA) assigns greater weight to more recent data. This approach allows the EMA to more accurately reflect the latest market movements and quickly capture trend reversal points.

However, this high sensitivity can sometimes backfire. It is recommended to use it in conjunction with other analysis tools, as there is a possibility of erroneous signals caused by noise.

Points to Note When Using EMA

The exponential moving average is a powerful tool, but it is not infallible. Like all technical analysis indicators, complete accuracy is not guaranteed. To enhance risk management, it is common to adopt a comprehensive approach that combines multiple technical indicators (such as EMA, SMA, RSI, MACD, etc.).

Considering the volatility of the cryptocurrency market, it is important to make judgments based on a composite analysis method rather than relying on a single tool.