To the untrained eye, the Ethereum price chart appears to be a stalwart of support that is currently acting as resistance. But in a new analysis, we’re going to take you on an exploration of why the opposite may in fact be true; and what that means for Ethereum going forward.
We’ll also take a look at where Ethereum has been trading when it drops below $180 and what its subsequent movements have been like. It will become obvious that these are some very telling signs moving forward because they establish a pattern that could be followed again in the future. For now, let’s break this down so it becomes clearer.
Known as the ‘DMA crossover’, this is something that technical traders keep an eye on because they believe it can indicate when a move up or down is coming to an end. We are going to use the standard definition – you can read more about the so-called ‘crossover’ here, but it essentially refers to a moving average (think of it like a line that follows the price of Ethereum) crossing over another moving average.
We mentioned earlier
That Ethereum has been trading sideways between $180 and $200 and while many investors have anticipated that break lower we believe that this is largely due to volatility in other exchanges.
At the time of writing, ETH is trading at $170.59 and has dropped to $170.10. Furthermore, according to the DMA crossover, Ethereum is yet to break heavily downwards which means that a strong breakdown would indicate that we are about to see this crossover in action.
From this, we can glean two things. Firstly, if the ‘DMA crossover’ doesn’t happen when Ethereum drops below $180 then this pattern will most likely be non-existent going forward and therefore has no relevance. Secondly, if Ethereum continues to trade sideways between $180 and $200 then we may see this pattern play out again in the future.
In short, what you should take away from all of this is that Ethereum is likely to continue trading sideways until it makes a decisive break downwards or upwards but not in the current format which means that we can now look at where else it could move to in terms of support or resistance.
Why is it called a DMA crossover?
DMA stands for ‘dynamic moving average’. As Wikipedia explains, “A dynamic moving average is an arithmetic moving average which automatically adjusts its bar width to the changing length of the series being averaged. The result is that it tends to better illustrate the recent data in the series, rather than making a compromise between showing only recent data versus reflecting all data equally (which can be confusing as well as misleading).”
In other words, one set of price candles will cross over another and by looking at where this has happened previously we can create a visual pattern which can help predict future movements.
Why does it matter?
As explained in our article on how to make money with cryptocurrencies there are a whole host of reasons why patterns like this can be useful. Technical traders often use them to ‘flag’ certain points in the price charts, especially when trading long-term. Namely, these are places where prices may potentially change direction or when resistance becomes support.
However, one of the biggest reasons for the DMA crossover becoming a ‘thing’ is that it simplifies technical analysis for traders who don’t have an advanced understanding of mathematics. The only thing you need to understand here is momentum and how price has been moving over time.
How can I use it?
The simplest way to use the DMA crossover is to look at its history in terms of previous price movements. If your aim is to trade Ethereum, then you will want to look at where previous trends have broken down and re-established themselves on stronger grounds.
There are many, many patterns that can help with this. You can also look at the red and green ‘accumulation’ box and the blue contracting box which show slightly different trends. By studying these patterns, you can then use them to forecast upcoming price movements which are where the ‘prediction tool’ comes in.
In order to do this, simply choose one of the boxes (either red or green) and study it carefully in order to figure out how it correlates with previous price movements. Once you have done this, you will be able to see when we would expect Ethereum to break upwards or downwards by following the crossover line (see our article on how to make money with Ethereum for more info).
