If you are looking for an effective way to eliminate lag in moving averages to obtain a more accurate representation of price movements, you should consider trying a new and improved version of the Exponential Moving Average, known as the Zero-Lag Exponential Moving Average. Thus far, it has proven to be the best moving average indicator in terms of its capability to filter out short-term price fluctuations. Let’s delve deeper into this indicator to enhance our cryptocurrency trading success.
The Zero-Lag Exponential Moving Average (ZLEMA) is a highly effective moving average in technical analysis. Its main goal is to get rid of the biggest defect of traditional moving averages, ‘lag’ or ‘delay’. Cryptocurrency traders often find it risky to rely completely on moving averages to make quick trading decisions, as a good number of them are lagging indicators. But crypto traders can confidently use ZLEMA to find trends and to generate signals promptly even to make quick decisions in crypto trading.
The Zero-Lag Exponential Moving Average indicator was created by a person named John Ehlers, and he wrote about them in a book he published in 2001 called ‘Rocket Science for Traders.’ This book introduced the concept of ZLEMA to the world of trading. The idea behind ZLEMA is to make moving averages more responsive and less delayed, helping traders make better decisions when buying or selling assets.
The Zero-Lag Exponential Moving Average can be calculated using the simple formula given below:
ZLEMA = EMA of (Entry Data for EMA) |
But, it is difficult to understand this formula unless you break it down into parts and understand each part better.
So, let’s break down this formula to three parts:
The result is a smoother moving average that closely tracks asset prices and removes much of the lag.
Let’s use the below given step-by-step guide to launch ZLEMA on a TradingView chart.
Here is the basic way to analyse using ZLEMA:
Look at the price chart and observe when the actual price crosses above the ZLEMA line. This can signal the start of an upward trend.
Conversely, when the price falls below the ZLEMA, it may indicate the beginning of a downward trend.
There are many ways to use this Zero-Lag Exponential Moving Average indicator.
Consider initiating a long (buy) position when the price crosses above the ZLEMA. This suggests a potential uptrend.
To exit a long position, watch for the price falling below the ZLEMA. This could indicate the trend is weakening.
When you are in a long position, you can consider placing a stop-loss order just below the ZLEMA line.
In a short position, you can place a stop-loss order just above the ZLEMA.
In conclusion, the Zero-Lag Exponential Moving Average (ZLEMA) is a valuable tool in the world of cryptocurrency trading. It overcomes the lag associated with traditional moving averages, enabling traders to make faster decisions. Created by John Ehlers, ZLEMA has a rich history and can be easily calculated. This article has provided a step-by-step guide to adding ZLEMA to TradingView charts and outlined how to use it effectively for trend identification, entry and exit points, and risk management. Enhance your trading strategy with ZLEMA and stay ahead in the fast-paced world of crypto trading.
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