Moving Average Crossovers

The moving average crossover is a technique used by traders of financial markets to assist in making trading decisions.

Typically, two moving averages are plotted on the chart, one of them a faster moving average, the other one a slower moving average.

A faster moving average intersecting above the slower moving average is known as a bullish crossover.

Additionally, a faster moving average intersecting below the slower moving average is known as a bearish crossover.

Using Moving Average Crossovers

The moving average crossover is a popular method used in technical analysis, for two main reasons, it’s simplicity and its effectiveness.

Traditionally, a single moving average is used by traders to help gauge the overall trend.

For example, in forex trading, many traders will use the 200 SMA (simple moving average) which is often a good support and resistance indicator.

However, by using two moving averages, it gives traders the ability to pick out specific turning points in the market.

The usefulness of the moving average crossover is that it can be used on any timeframe and in any market.

The faster moving average is a shorter period MA, meaning it only considers the market over a shorter period of time. Consequently, it’s much more prone to changing scope and direction.

However, the slower moving averages are a longer period MA, meaning it considers the market over a longer time period.

This results in a MA which is less reactive to rapid fluctuations in price, giving it a visually smoother look on the charts.

There are a number of different ways to trade the moving average crossover, but without a doubt the most popular way is the classic two MA crossover.

This helps traders, depending on the period settings of both MAs, either get in near the beginning of a trend, or enter as the trend gets established.