Want to learn how to trade with a Moving Average Crossover Strategy? Learn everything you need to know about this popular strategy in this tutorial!
Generally, the Moving Average Crossover Strategy is the first strategy that every trader had to learn. The approach is straightforward but there are many settings that you can try.
In this tutorial, we’ll examine many Moving Average Crossover Strategy:
- Moving Average Price Crossover
- Double Moving Average Crossover
Moving Average Crossover Strategy using the Price
It is a straightforward moving average strategy when price crosses above or below the Moving Average you have the buy/sell signal.
There are two alternatives:
- Buy/Sell instantly when price crosses the line
- Buy/Sell after the end of the candle when the bar closes above/below the line
If you are using a fast Moving Average for intraday, the first alternative can creates too much false signal, so attend the previous closed price is the best choice.
If you are using a slow Moving Average, for example, in a 200 Day Moving Average Strategy, you can open the position instantly at the touch.
Price rarely touches the line in a 200-day moving average strategy, and you can’t lose the opportunity, but in this scenario, your stoploss will be larger than the normal.
In conclusion, the Moving Average Price Crossover Strategy could be optimal for long term trading with very slow indicators, but it can provide too much false signal in an intraday trading strategy.
Double Moving Average Crossover Strategy
Using two moving averages can reduce false signals. You’ll choose one fast and one slow moving averages. The strategy is the same, but instead to use the price you’ll use the fast-moving average crossover.
With two moving averages, you could stay longer in a trade, as you can see, using the previous strategy, the trade would have closed immediately.
There’s some middle ground. For example, if you like to use the price crossover, but you are trying to limit the false signals, you could average the price with a 3-periods moving average.
With this trick, you filter many false crossovers, because the 3-periods moving average is more stable respect of the price.