Moving Average Crossovers– Advanced Technical Analysis Tool

Slow and fast moving average

The moving average crossover is formed by using two moving average lines. One is a fast moving average and the other is a slow moving average. If the time period is high then it is slow moving average and when the time period is low then it is a fast moving average. Like for example if the moving averages plotted are the 200-day and the 100-day moving average then here the 200-day moving average is the slow line and the 100-day moving average is the fast line.

Both the moving averages are plotted on the chart in different colors. Now when the fast moving average crosses the slow moving average on the upside then this indicates an uptrend. When the fast moving average crosses the slow moving average on the downside then this is a downtrend.

Hop over here to learn how to plot the averages.

Entering the market using a moving average crossover

So suppose that the market is in a downtrend and then the markets start to stagnate. Here the moving averages will start to come close to each other. As soon as the trader sees that the fast moving average has crossed the slow moving average on the upside then he buys the asset. This indicates that the bearish move is over and a bull run has started.

The same applies the other way round too. In this case, the market is in an original uptrend but then the market starts to move horizontally. When the trader sees that the fast moving average crosses the slow moving average on the downside then he sells the asset. This indicates that the bullish trend is over and a bearish trend has started.

Exiting the market using a moving average crossover

The moving average cross over is not just used to enter the trade but to get out of the trade as well. Here suppose one is riding the trend on the upside. As soon as he sees that the trade is stagnating and the moving average crossover has happened towards the downside he gets out of the trade. So once the fast moving average crosses the slow moving average on the downside trader is out of the trade.

Similarly, when the trader is riding a bearish market but sees that the fast moving average has crossed the slow-moving average on the upside then he gets out of the short trade.