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.
1. Zero-Lag Exponential Moving Average: What You Should Know
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.
2. The History of Zero-Lag Exponential Moving Average
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.
3. Calculate Zero-Lag Exponential Moving Average: The Simplest Method
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:
- Firstly, find the ‘Lag’, which is calculated as half of (n day’s period -1). This helps determine how much lag you want to eliminate.
- Secondly, calculate the ‘Entry Data for EMA’ by taking the current day’s ‘Close’ price and adding the difference between the current day’s ‘Close’ and the ‘Close’ of the day that occurred Lag days ago.
- Finally, to find ZLEMA, apply an Exponential Moving Average (EMA) to the Entry Data for EMA.
The result is a smoother moving average that closely tracks asset prices and removes much of the lag.
4. Steps to Launch Zero-Lag Exponential Moving Average on a TradingView Chart
Let’s use the below given step-by-step guide to launch ZLEMA on a TradingView chart.
- Log in to your TradingView account
- Choose an asset you want to analyse using the search bar
- Launch the chart by clicking on the chosen asset
- Navigate the ‘Indicators’ button, and click on it
- Search for ZLEMA by typing ‘Zero-Lag Exponential Moving Average’ in the search bar
- Choose the ZLEMA indicator from the dropdown, and click on it to add it to your chart
- Customise the indicator settings if needed (e.g., period or colours)
- Click ‘OK’
- Start analysing price movements with reduced lag
5. Analysing a TradingView Chart using Zero-Lag Exponential Moving Average
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.
5.1. How to Use ZLEMA
There are many ways to use this Zero-Lag Exponential Moving Average indicator.
- Entry Points & Exit Points
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.
Endnote
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.