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AAX Trends

Understanding the EMA Cross Indicator

Understanding the EMA Cross Indicator

Crypto Technical Analysis

08 Jan 2021

The EMA cross indicator is a lagging indicator, which works through looking for crossovers between the 9 and 26 day EMA. EMA (Exponential Moving Average) is a type of MA (Moving Average).


How is the EMA Cross Indicator calculated?

A traditional SMA indicator (Simple Moving Average) uses the formula below:

  • A(n) = The high from the period used (typically the daily indicator)
  • 5 day SMA = (A1+A2+A3+A4+A5) / n

In the five day SMA, the highs of five days are added together then divided by the number of days used in the calculation (5).

  • 7 day SMA = (A1+A2+A3+A4+A5+A6+A7) / n

In the seven day SMA, the highs of seven days are added together then divided by the number of days used in the calculation (7).

The data from these calculations are then used to create the SMA seen below.

30 day SMA & EMA - NEO/USD

x

Why EMA not SMA?

The EMAs used in the EMA cross indicator are different from SMAs as they place greater emphasis on the current price action. As we can see below, the 30 day EMA (blue) is more reactionary to price in comparison to the 30 day SMA (red).

30 day SMA & EMA - NEO/USD

The EMA is used over the SMA for the crossover indicator, due to the SMA sometimes lagging too far behind current price action, producing poor buy and sell signals.

How to read the indicator

Note - default settings for AAX EMA crossover indicator are:

Red - 9 EMA

Green - 26 EMA

The time periods can be edited if the

button is clicked on.

Bullish crossovers

A bullish crossover occurs when the red EMA crosses above the green EMA. This indicates that the overall trend is switching from bearish to bullish, therefore suggesting that the cryptocurrency will increase in price.

EMA crossover indicator - NEO/USD

Bearish crossover

A bearish crossover occurs when the red EMA crosses below the green EMA. This indicates that the bullish run has come to an end. Therefore the indicator is suggesting that the cryptocurrency will decrease in value.

Support / resistance

During bullish and bearish crossover runs, the red and green EMAs act as support / resistance.

EMADuring bullish crossover runDuring bearish crossover run
Red (9)Minor supportMinor resistance
Green (26)Major supportMajor resistance

Example

Below in the chart, we can see the red and green EMAs acting as support for NEO during its bullish crossover run.

NEO/USD

Recommended indicators used alongside the EMA crossover

Volatility Indicator

Indicates the slow down in volatility, allows for easier visualisation of false breakouts and potential crossovers.

MACD

When the MACD sees a crossover alongside the EMA, increases likelihood of bullish or bearish trend occurring.

Bollinger Bands

Increases likelihood of correct exit points through using a 20 day SMA and deviations.

Learn how to identify points of resistance and support

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