One of the most frequent questions we get here at Monfex is whether to hold or to trade cryptocurrencies. It’s not enough to just advise people to get on to the Bitcoin train without telling them how to conduct themselves. It’s pretty much like telling people to get aboard a ship without giving them a clear idea of the destination. People want to know if it is wise to just cut their losses and trade Bitcoin after a price drop, or hold on to the asset hoping for a strong movement north in the near future. We make it extremely easy to both buy and trade here at Monfex.com, so this question is squarely in our purview.
To trade or hold BTC?
There are so many factors behind Bitcoin’s price action. Conspiracy theories have it that the digital asset’s prices are often manipulated by shadow forces. It is best that one looks at future market predictors before deciding whether to hold or trade Bitcoin. This is because you only want to buy something now if you have an idea that its value will blow up in the future. Nobody, at least no one who is financially astute will buy an asset today with the knowledge that they can get it in the future at a lower price.
Volatile BTC price action
Bitcoin’s up and down movement should tell you whether you want to invest. Bitcoin (BTC) dropped by 80 percent from its 2017 all-time high last year to settle at $3590 back in December. 2019 has seen the largest digital currency by market cap (BTC), regain some respectability having gained by 150 percent by October 2019 from its early year lows. These fluctuations maybe scary but they do speak to one thing, no asset in existence be it Gold, or any commodity or currency gains quite like Bitcoin. Comparisons drawn between Bitcoin and Gold have fallen flat because Bitcoin has outperformed gold every year since 2011.
Another factor to think about is the global economy. The world economy is growing at around 3 percent which is the most positive indicator since 2011. This is a good forecaster for Bitcoin’s future and hints at possible better times even though the digital currency was created to disrupt traditional financial systems. Trading Bitcoin has its gains since one can gain significant amounts from the ups and downs. Holding can also be great if the market experiences a surge. It’s really up to you. Some though are of the opinion that holding is dangerous. This school of thinking is quite understandable. What happens if you hold on to your BTC holdings only for your prices to hit rock bottom over a weekend?
This question has led to the rise of vocal Bitcoin critics such as the ever loud Nouriel Roubini and Billionaire Mark Cuban, who famously said that he would rather invest in Bananas than Bitcoin. People who don’t agree with these cynics on the legitimacy of crypto but have concerns over its price fluctuations prefer to trade it.
Trading Bitcoin using Exponential moving averages
If you are going to be a trader then you will need to pay attention to its exponential moving average. An exponential moving average (EMA) is a calculation that analyzes data points by creating a series of averages of parts of the whole data. It is commonly used to smooth out short term fluctuations and highlight longer-term trends and cycles. It has various uses in economics and finance, such as to examine a gross domestic product, employment, and stocks. It most definitely can be used as a tool to examine the crypto markets. It basically calculated by taking the number of periods being examined and adding up the closing prices of the period and multiplying them with a weighting factor. The weighting factor is usually higher for recent periods than for periods in the distant past to give more importance to recent data.
Traders who make use of technical analysis find EMA’s very useful in their trades when applied correctly. They can spell doom though if applied incorrectly. Moving averages like the EMA are best suited for trending markets than sideways markets. The EMA indicator line shows an upward trend by hugging the price during surges and does the same downwards during crashes. The line flattens or reverses to indicate a rate of change in price. This is another important aspect that traders look at when attempting to forecast the future. A gradual flattening indicates a slowdown in momentum while a reversal indicates that price is gearing up to head to the opposite direction.
Best Exponential moving averages for Bitcoin
The almighty question is what EMAs are best for you to observe as a Bitcoin trader? It really depends on your trading strategy as an individual. Here at monfex.com we lay out the positives attached to a short term outlook and a long term outlook as well. If your approach is more long term, then the 50 and 200 EMAs will work for you just fine.
They are signals of long term trends and will indicate where markets will go in the future. An intra-day or short term trader would ideally look at the 12 and 26 EMAs which are indicators for short term price action. The EMAs work is a crossover to the upper side indicates a buy and a crossover to the lower side indicates a short.
It is a mistake to only consider EMAs in your trading decisions. EMAs are great for trading Bitcoin but as traders like to say, “Man cannot live on technical alone”. You also have to keep a watchful eye on breaking news in the crypto world to help guide your trade moves. Breaking news like the recent speech by Chinese President Xi Jinping can see prices surge. News of new restrictive regulations, bans, and heists can also have a negative effect that sees markets crash. EMAs work best with news backing them.