An average: What’s it in terms of crypto?
The term “Average” in the cryptocurrency industry often refers to three basic concepts:
- Moving Average: An average of the price of an asset over a certain period.
- Average Price: In the context of the cryptocurrency industry, the average price level refers to the average value of a cryptocurrency over a certain period.
- Average Daily Trading Volume: Average Daily Trading Volume refers to the average number of cryptocurrency units that have been bought and sold on an exchange over a period of time, usually within a single day. The average daily trading volume can be used to assess market liquidity and determine the interest of traders in a given cryptocurrency.
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How do traders use them?
Let’s look at a few examples of how traders can interpret indicators related to the concept of “Average” in cryptocurrency:
- Average Price: Suppose a trader purchased 1 BTC at $10,000 and another 1 BTC at $12,000. The average price will be calculated by dividing the total amount spent by the total amount of BTC. In this case, the average price level will be equal to ($10,000 + $12,000) / 2 = $11,000. The trader can now use this average price level to evaluate his position and make decisions. For example, if the current price of BTC on the market is above $11,000, the trader may consider his position profitable, and vice versa, if the price is below $11,000, the position may be considered unprofitable.
- Moving Average: Suppose a trader analyzes a chart of BTC prices and applies a 50-day moving average. If the BTC price rises above the 50-day moving average, it can signal a possible change of trend to upward. A trader may consider opening a position to buy BTC. On the other hand, if the BTC price falls below the 50-day moving average, it may indicate a possible downtrend. A trader may consider opening a sell position on BTC.
- Average Daily Trading Volume: Suppose a trader analyzes the market and notices that a certain cryptocurrency has a high average daily trading volume. This may indicate that the cryptocurrency in question is receiving active interest from traders, which may indicate high liquidity and trading opportunities. A trader can use this information to select assets with sufficient liquidity and activity in the market to reduce the risk of potential slippage and ensure more efficient execution of their buy and sell orders.
- Moving Average Volume: Traders can also use the Moving Average Volume to analyze trading volume in the market. For instance, they can calculate a 10-day moving average of trading volume and use it to determine changes in a trader’s activity. If the current trading volume is higher than the average, it could indicate increased interest and activity in the market, which could present a trading opportunity.
- Moving Average Volatility: Traders can calculate the moving average of the price range over a certain period and use it to determine levels of market stability or volatility. If the current volatility exceeds the moving average, it may indicate an increase in market volatility and traders can take appropriate action, such as setting wider stop losses or limiting the size of positions.