There is a large number of trading indicators that could be used by traders around the world. The Bitcoin 200 day moving average is one of the most popular ones and it could help traders improve their trading activities.Â
In this guide, we are going to tell you what the Bitcoin 200 day moving average (SMA) is, how it works and why it could be very important for traders in the cryptocurrency market. It shares valuable data about possible trend changes and also adds information about possible support and resistance levels during bull and bear markets.
What is the 200 Day Moving Average?
According to Investopedia, the Bitcoin 200 day moving average is a trading indicator that lets traders know the direction in which the market is going. The basic rule when using this indicator is to see whether the price of the asset (in this case Bitcoin) is above the 200-day SMA or below.
If Bitcoin is above the 200-day SMA, then the market is in a bull trend. That means that the price of the asset is moving higher rather than lower. As long as this is true, the market would be in an uptrend.
The Bitcoin 200 day moving average takes into consideration the average price of the last 200 days. This is very useful for Bitcoin as it never closes during the weekends. The market operates on a daily basis compared to other financial instruments. Traditional markets prefer to use the 255-day moving average as it includes the trades of an entire working year.
When trading in the cryptocurrency market, investors would not only follow the Bitcoin 200 day moving average but also the 50-day moving average. These two indicators are basically used together as they share very important information for traders.
In addition to the Bitcoin 200 day moving average, traders add other indicators such as volume, trendlines and Fibonacci levels, among others. It is difficult to find indicators that work in an isolated way. Most technical analysts use different indicators before making a trading decision.
When using the Bitcoin 200 day moving average you would also see that there would be a Bitcoin 200 day exponential moving average. We will get into the difference that exists between these two in order to have a clear understanding of how the indicators work.
How Does the Bitcoin 200 day moving average chart look like?
As you can see in the image above, the Bitcoin 200 day moving average is just a trendline that appears below or above the price (depending on the price evolution of the asset) and that gives valuable information about the trend.
In this case, we see that most of the time since the COVID-19 crisis hit the market, the price of Bitcoin has been in a bull trend (above the 200-day SMA). Only for a short period of time between May and August, the price of Bitcoin was below this indicator. Nonetheless, in just a few weeks, it was able to recover and we are currently above the 200-day SMA.
If you are a trader, you can always change and edit the way in which the Bitcoin 200 day moving average looks. Some traders prefer the line to have a different colour while others would prefer a bold format.
Now, in the following image, you can see that we have added the 50-day moving average to the chart. In this way, you can have more detailed information about the general trend of the virtual currency. Considering the 50-day moving average takes into consideration a shorter trading period (50 days), the average would fluctuate more than the 200-day SMA.
This is very important to understand shorter trends. Traders will have the possibility to compare both SMAs and open or close positions according to their moves. Although we are now focusing on Bitcoin, the indicator could work on other types of digital currencies. Thus, it is indeed a great tool for both traditional and crypto markets as it gives valuable information to traders to make trading decisions according to their needs.
Bitcoin Trading Strategies With the 200 Day Moving Average
There is a large number of trading strategies that traders use with the Bitcoin 200 day moving average. These trading strategies would highly depend on the type of traders they are and their goal in the market.
We will focus in this section on three main strategies that traders could follow with the Bitcoin 200 day moving average and the 50-day SMA. Although these indicators could also be combined with others, we are just focusing on the 200 and 50-day SMA.
Death Cross
As we previously mentioned, the Bitcoin 200 day moving average is considered to be a very useful indicator for traders. Even when it is used alone it provides valuable information to investors. However, it can have an even better effect when combined with the 50-day moving average.
There is a specific event in which the 50-day SMA crosses the 20-day SMA. If the cross takes place downwards, then we are talking about a death cross. This has a negative connotation as the market expects the asset to move lower in the future. Thus, this cross works as a trigger for traders and also for bots that get executed as soon as the death cross takes place.
Since the beginning of 2020, we have seen just two death crosses on the BTC/USDT trading pair. The first death cross took place during the COVID-19 crisis in February/March 2020. The second death cross took place in June 2021.
Although these were selling signals for traders, these events were short-lived and were not followed by long bear markets. Indeed, Bitcoin’s price fastly recovered and moved higher again, negating the death cross.
Golden Cross
As there is a death cross if the 50-day SMA crosses to the downside of the 200-day SMA, there is also a golden cross that takes place when the 50-day SMA crosses to the upside of the 200-day SMA. This is considered a bullish signal for traders that want to enter a position in the cryptocurrency market.
The market is expected to move higher after the golden cross happens. This could usually mean that the market could start a bull trend or that the bull trend already started and that investors could open a position.
Since January 2020, there have been just two golden crosses in the market. The first one took place right after the COVID-19 crisis in March 2020. Indeed, as soon as the market recovered, the price of the virtual currency started moving higher. This golden cross signalled a very positive movement for Bitcoin as the digital currency reached a high of over 64,000 USDT a year later.
The second golden cross took place in September 2021. After this cross, Bitcoin reached a new all-time high of $66,000. Thus, we see that there has been a strong bullish market over the last two years that can be reflected in the charts with the Bitcoin 200 day moving average and the 50-day SMA.
Support and Resistance Levels
Another thing that is worth taking into account is related to using the Bitcoin 200 day moving average to find support and resistance levels. Usually, technical traders tend to search for possible support and resistance levels with Fibonacci values. This is very useful to detect bottoms and possible local tops.
Using the Bitcoin 200 day moving average would offer similar information to traders. In our previous example, we see that this indicator worked as resistance when the market tried recovering in May and June 2021. Moreover, it worked as a resistance and support level during the months of August and September of 2021.
This is also true for the 50-day SMA. We see a more clear function of support and resistance levels for this indicator than for the 200-day SMA. This is why it is always important to use both indicators when analysing the market.
Using Other Indicators
As we mentioned in previous sections, it is definitely important to use other trading indicators when analysing the market. We cannot rely just on one indicator, as it could share with us incomplete information about the current situation of the market. This is why there are many other tools that would let us confirm (or not) our analysis using the Bitcoin 200 day moving average.
For example, one of the things we could do is add the volume indicator to the cart. If we see that the 50-day SMA has positively crossed the 200-day SMA, then we should understand whether this cross has been received by the market and is acting positively.
If during a golden or death cross volume does not surge, then we should raise a red flag. Why? Because it shows that the market is moving in one or another direction without a clear engagement from market participants. Volume spikes in key moments and levels would be definitely important to help us confirm a trade.
We could also use another indicator called Bollinger Bands. This would help us understand whether the market is currently in overbought and oversold conditions. A similar indicator is the RSI (relative strength index). These indicators would let us get valuable information about the current situation of the market and whether there is a strong trend or not.
Finally, a very useful indicator that could help us add more data to our Bitcoin 200 day moving average analysis is the MACD. This indicator is also a moving average that calculates shorter periods of time. In addition, it has a signal line that shares buying and selling opportunities for traders.
If you see the signal line showing a buy or sell signal at the same time that there is a golden or death cross, then you are having a double confirmation about a possible trend change. This would let you open a position with an increased degree of confidence that the market is moving in the direction that you expect.
Why is the 200 Day Moving Average Important?
The Bitcoin 200 day moving average is mostly used by long-term investors that want to have clear information about the trend in which they are currently investing. Most of the time, traders would combine the 50-day SMA with the 200-day SMA in order to get accurate signals to buy or sell Bitcoin and other assets.
Short term traders would not pay so much attention to the 200-day moving average, as they would be analysing other short-term trading indicators. Scalpers and day-traders might not find the Bitcoin 200 day moving average useful to execute their trades. Thus, it becomes more important for long-term and swing traders than for those investors that are searching for profits in the short term.
The importance of the 200-day moving average is determined by averaging the price of the asset over the last 200 days and giving a clear picture of what the trend was over this period of time. Thus, it would be a great tool to get valuable information in a volatile market.
The 200 Day Exponential Moving Average
In this Bitcoin 200 day moving average post, we have only discussed and talked about the 200-day SMA. This is the simple moving average that makes a simple average of the period they describe (200-days, 50-days, 9-days, etc).
However, there is another indicator that is very similar to the Bitcoin 200 day moving average and that is called exponential moving average. The 200-day exponential moving average (EMA) pays close attention to recent price action rather than simply averaging every single trading day.
Thus, recent price action would have a larger impact on the 200-day EMA than on the 200-day SMA. That means that the exponential moving average would be more responsive to recent price changes compared to the simple moving average.
Investors consider that placing closer attention to recent price changes would give more accurate information about the trend and the strength of the current market trend compared to the SMA. Nonetheless, both of these indicators are commonly used by technical traders that want to have valuable information about the market.
In the same way, as it happens with simple moving averages, the 200-day EMA and the 50-day EMA are used together. You can also find the same signals (death and golden cross) and eventually use them to detect possible support and resistance levels.
