Moving Average Crossover Boost Your Trading Success with A Reliable Strategy

  1. Technical Analysis
    1. How Technical Analysis Can Help You Make Informed Decisions in Mastering Stock Trading
    2. Technical Analysis Setting Realistic Expectations
    3. Introduction to Technical Analysis and Assumptions
    4. Technical analysis for Profitable Trades Analyzing Open, High, Low, and Close
    5. Candlestick Charts How Line and Bar chart Enhance Market Analysis
    6. Japanese Candlesticks History, Anatomy From Ancient Japan to Global Trading Phenomenon
    7. Time Frames in Technical Analysis Unlocking the Power of Choosing the Right Interval for Successful Trading strategy
    8. Candlestick Patterns How to Identify and Interpret Trading Signals
    9. Marubozu and Bullish Marubozu Understanding What is Essential Single Candlestick Patterns for Traders
    10. Marubozu Candlestick Setting Stop Loss The Ultimate Guide to Trading Patterns
    11. Spinning Top Candlestick Navigating Downtrends A Trader’s Guide to Identifying Reversal Signals
    12. Spinning Top and Doji How to Interpret and Navigating Market Uncertainty
    13. Paper umbrella and hammer candlestick pattern Unlock Profitable Trades
    14. Hanging man candlestick pattern Profitable share market trading Strategies
    15. Shooting Star Candlestick Pattern Boost Your Trading Success Guide
    16. Engulfing Patterns and Bullish Engulfing Signals Unlock Trading Opportunities
    17. Bearish Engulfing and Doji for Trading Success Profitable Strategies with Candlestick Patterns
    18. Multiple Candlestick Patterns Insights and Strategies Boost Your Trading
    19. Bullish Harami Candlestick Pattern for Trend Reversal Strategies
    20. Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence
    21. Morning Star Candlestick Pattern and Gap Analysis To Maximise Your Profits
    22. Evening Star Candlestick Pattern Learn How to Identify and Trade to Boost Your Trading Success
    23. Support and Resistance Basics A Comprehensive Guide to Setting Targets and Navigate the Markets with Confidence
    24. Support and Resistance Learn How to Draw and Identify Key Levels Unlocking Trading Opportunities
    25. Support and Resistance Advanced Trading Strategy Analysing Reliability and Optimisation
    26. Volume Trends How to Leverage for Successful Trading Strategy
    27. Volume Analysis A Key Checklist for Successful Stock Trading
    28. Moving Averages A Comprehensive Guide for Trend Analysis in Stock Trading
    29. How to Use Moving Averages for Profitable Trading Strategy and Potential Opportunities
    30. Moving Average Crossover Boost Your Trading Success with A Reliable Strategy
    31. Technical indicators How to Use Technical Tools for Better Decision-Making Unlocking the Power of Trading
    32. Relative Strength Index RSI Analysing Overbought and Oversold Signals to Boost Your Trading Strategy
    33. MACD How to Interpret and Utilize Moving Average Convergence and Divergence for Profitable Trading
    34. Bollinger Bands The Power of Indicators in Trading and checklist
    35. Fibonacci Retracements Unravelling the Power in Stock Markets
    36. Mastering Fibonacci Retracement A Step-by-Step Guide for Effective Trading
    37. Dow Theory Decoding Unveiling the Principles of Technical Analysis
    38. Dow Theory Patterns Unlocking Trading Opportunities with Double and Triple Formations
    39. Trading Range Explained chart indicator example strategy Profit from Market Ranges
    40. Flag Pattern and Range Breakout How to Capitalise Trading Beyond Boundaries
    41. Risk reward ratio Understanding RRR in Dow Theory
    42. Technical Analysis Tools for Traders Charting Software Guide Enhance Your Trading
    43. How to Select Stocks for Trading Success and Building Your Opportunity Universe
    44. Short Term Trading Unleashing the Power of Scalping Strategies
    45. ADX Indicator and 7 more indicator tools for Trend Strength Analysis
Marketopedia / Technical Analysis / Moving Average Crossover Boost Your Trading Success with A Reliable Strategy

The plain vanilla moving average system is notorious for generating too many trading signals in a sideways market; however, a moving average crossover system provides an improvement. It assists traders in limiting the number of trades they take in this kind of market.

Instead of the common single MA in a crossover system, traders often employ two MAs, which is often referred to as ‘smoothing’.

An example of this is combining a 50-day EMA and 100 days EMA. The shorter one (50 days) is the faster-moving average, and the longer one (100 days) is the slower-moving average.

The shorter moving average takes fewer data points to calculate the average, leading to closer tracking of the current market price: thus, it responds more swiftly. On the other hand, the longer moving average requires more data points to calculate the average, so it tends to be further from the market price and reacts slower.

The following Bank of Baroda graph illustrates the way that the two moving averages can be plotted on a chart.

As is evident, the black 50-day EMA is closer to the current market price since it responds more quickly compared to the pink 100 days EMA, which reacts more slowly.

Traders have changed the standard MA system to a crossover system in an attempt to improve entry and exit points. This helps to limit the number of signals that are generated but increases the chances for successful trades.

The entry and exit rules for the crossover system are as follows:

Rule 1- When buying fresh long positions, make sure that the short-term moving average is higher than the long-term moving average. Remain in your position for as long as this requirement is met.

Rule 2- Once the short-term moving average becomes less than the longer version, it is time to close out the long position.

Let us use the MA crossover system to analyse BPCL, so that we can compare the results easily. The chart below shows the BPCL with a single 50-day MA.

MA showed 3 trading signals during the sideways market trend, but it was the 4th one that proved to be the most lucrative, as it yielded a 67% profit.

The chart presented illustrates the implementation of a moving average crossover system using 50- and 100-day exponential moving averages.

The black line plots the 50-day moving average, and the pink line tracks the 100-day one. As per the crossover rule, when the shorter-term MA crosses over its longer-term counterpart, it’s a signal to go long. An arrow marks how this point of crossover can help traders stay away from three unprofitable trades. This is definitely the biggest benefit of such a system.

A swing trader can use any combination to construct a MA crossover system. Popular pairings may include:

  1. Use 9-day and 21-day exponential moving averages (EMA) for brief trades, up to a few trading sessions.
  1. 25-day and 50-day exponential moving averages can be used to pinpoint medium-term trades spanning a few weeks.
  1. Employing a combination of the 50-day and 100-day EMAs can help you find trades that can remain active over several months.
  1. Use the 100 and 200-day EMAs to identify long-term trades that could last from one year up. These can be great investment opportunities.

The more time that has passed, the fewer trading signals you will receive.

An example of a 25 x 50 exponential moving average crossover can be seen here, giving three trading signals that meet the criteria.

Of course, the MA crossover system has its uses in intraday trading as well. For example, one could use a 15 x 30-minute crossover to detect short-term possibilities. A more aggressive trader may opt for a 5 x 10-minute crossover instead.

This popular expression is often heard in trading circles – “The trend is your friend.” Moving averages are a useful tool for determining trends and identifying potential support and resistance levels.

MA is a trend-following system, and it is effective no matter the time frame or crossover combination.


    Get the App Now