Technical analysis offers us various analysis possibilities. We can use dozens of different indicators to predict the direction of prices. Therefore, it is possible to find many indicators to support the prediction of a price rise or fall at any given time. So which of these indicators should we base ourselves on?
A multi-faceted analysis, including the macroeconomic situation, is necessary to predict the market's direction. For example, the CPI data that will be announced in the USA today will be more effective than all technical analysis indicators. On the other hand, if I had to look at one indicator to predict the market's direction, I would look at whether the price is above or below the 200-day simple average (SMA).
As we can see in the chart, the Ethereum price fell below the 200-day simple average (SMA) level in January of last year. It tried to cross the 200-day SMA in April and October but encountered heavy selling at this level. Today, the Ethereum price has reached a critical level again. If the CPI data comes to around 6 percent, as expected, it may exceed this level.
The prices, which have been strong since the beginning of the year, enabled many indicators to turn positive. The 10, 20, 50, and 100-day SMA and EMA have turned positive. As of now, the 200-day SMA is also in positive territory. If there is a close above the 200-day average today and the price does not decline tomorrow, we can look at the future of Ethereum with more hope.
Is what has happened in the last year alone enough to decide that the SMA 200 is an essential indicator of Ethereum's price? What would we conclude in the long run if we only traded on the 200-day SMA? I did a simulation to answer these questions. We buy when the Ethereum price rises above the 200-day SMA and stays above the next day. We sell when the price drops below the 200-day SMA and remains below the next day. Suppose we have 1000 dollars. Ethereum was launched in 2015. We waited for the 200-day average to form and bought 247 Ethereums for $4.05. Then we always process according to the algorithm I explained above. The results are in the table below.
If we had bought 247 Ethereums for 1000 dollars on April 23, 2016, and never sold, our Ethereum would be 345k USD in dollars today. Whereas, when we trade according to the 200-day SMA, the amount of Ethereum we has increased from 247 to 887. And the monetary equivalent of the mentioned Ethereum rises to 1,235k USD.
I have done similar simulations for many technical analysis indicators. Only the 200-day SMA gave a significantly positive result. By the way, the SMA 200 also produces many false signals. The SMA 200 seems ideal for markets with high volatility, like crypto.
Conclusion
Will Ethereum be able to stay above the daily SMA today and tomorrow? If the optimistic scenario is realized, will a similar situation occur in other cryptocurrencies such as Bitcoin and Hive? It is not possible to give a clear answer to these questions.
It's essential to have a long-term perspective when trading the 200-day average. In addition, we need to choose the cryptocurrency we will invest in. It will not be appropriate to trade according to SMA 200 in cases where the prices in the market are stable for a long time. On the other hand, we know that periods of indecision in the crypto market are short-lived. Therefore, the motto "trend is your friend" is valid in the crypto market, and the SMA 200 is the leading indicator showing the trend.
Thank you for reading.