Want to learn to quickly spot a trend? Look no further. Say hello to the good old moving average. This post will show you a shortcut to a moving average crossover strategy.
Moving averages come in all shapes and sizes. You can use a 5-day moving average or a 200-day moving average. These averages don’t necessarily have to be in days, either. For example, you can trade off of a five-minute chart using a 20-period moving average in which case the average is determined by the last 20 five minute periods.
A moving average (MA) crossover strategy is very popular and very simple, one that even novice traders can start implementing in their trades.
One of the most common MA crossover strategies is the 9 and 18 crossover.
It’s pretty simple and goes like this:
- When the 9 period moving average crosses above the 18 period moving average, look for longs or exit shorts.
- When the 9 period moving average crosses below the 18 period moving average, look for shorts or exit longs.
This strategy is very simple, yet effective.
The idea here is that the short moving average crossing above or below the long moving average will give you a good idea on near-term trend. Having a clear picture of the near-term trend can potentially help you stay on the right side of the trade.
Of course, if trading were this easy then everyone would be day trading from the comfort of their own yachts in the sunny Caribbean or Mediterranean.
This strategy simply provides a good basis from which to work. A solid risk management and trade management plan must also be considered.
The moving average crossover can be utilized with different average lengths such as 5/10, 10, 20 etc. In addition, it can also be utilized with different types of moving averages such as simple or exponential.