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  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
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      • Dow Jones Titans Indices
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      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
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      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
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      • US Treasury Yields
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On this page
  • Why Trade Price-to-Moving Average Crossovers?
  • Types of Crossovers
  • Which Period Moving Averages Should I Use?
  • How To Trade a Bullish Price Crossover
  • Example of Trading a Moving Average Crossover
  • How To Trade a Bearish Price Crossover
  • Example of Bearish Price Crossover
  • A Few Potential Pitfalls to Consider
  • Get an Edge

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  1. Table of Contents
  2. Trading Strategies & Models
  3. Trading Strategies
  4. Moving Average Trading Strategies

How To Trade Price-to-Moving Average Crossovers

Traders and investors often use moving average crossovers to make entry and exit decisions. Here's an overview of the different ways you can apply moving average crossovers.

KEY TAKEAWAYS

  • A price-to-moving average crossover identifies entry and exit points by focusing on price movement at the time price intersects with a moving average

  • The moving average periods you use depends on how long you intend to hold the position

  • You can trade bullish or bearish moving average crossovers depending on stock market conditions


Say you use a moving average—such as the 50-day simple moving average (SMA)—to measure the direction of a trend. If prices are above the 50-day SMA and both are rising, you can assume that a stock is in an uptrend. If prices are below the 50-day SMA and both fall, it’s likely a downtrend. When both are flat and price moves above and below a flat SMA, the market is probably going sideways, meaning there’s no trend.

These concepts are easy enough to grasp. But to exploit a trading opportunity early on, you might have to wait until prices and their corresponding moving average cross. In other words, you might wait for and take advantage of a bullish or bearish price and moving average crossover to make a more aggressive market entry. It can be a bit tricky, depending on the situation, but here are a few ways to do it.


Why Trade Price-to-Moving Average Crossovers?

Moving averages provide a window into a stock’s underlying trend. By comparing the price of an asset to its moving average, you get a better picture of a stock’s trajectory and can anticipate where prices may be heading next.

A price-to-moving average crossover is a technique that focuses on the moments when the asset price intersects with its moving average. These intersections or “crossovers” can signal a shift in trend, offering up some potential trade opportunities. First, let’s look at the two types of crossovers.

Types of Crossovers

There are generally two types of crossovers. Note that these are not “hard” rules but rules of thumb that depend on the larger context. So, keep them in mind, but stay flexible.

  • Bullish Crossover. This is when the price moves above its moving average. It often suggests that the stock’s momentum is starting to move upward, indicating a potential buying opportunity.

  • Bearish Crossover. When the stock's price falls below its moving average, it’s generally considered bearish. It tells you that the stock has lost bullish momentum and is either pulling back to take a breather or entering a downtrend. If the latter, it suggests a selling or short-selling opportunity.

Again, these are conditional and heavily reliant on the context. We’ll get into this later, but for now, it’s important to remember that longer-term moving averages may be a bit less vulnerable to “market noise,” which can result in giving you more false (bullish or bearish) signals. So, let's get to it. Here are a few basic rules to work into your trading plan.

Which Period Moving Averages Should I Use?

The choice of which moving average you might want to use boils down to the timeframe of your trading window.

  • Short-term periods. The 5-day or 10-day SMA might be suitable.

  • Intermediate-term periods. The 20-day or 50-day SMA might fit your trading window. For many traders, the 50-day SMA, in particular, serves as a critical support or resistance level.

  • Long-term periods. The 100-day or 200-day SMA are typically your go-to averages.

The choice of MA period also depends on your approach or trading strategy. The best thing to do is to experiment with different settings to find the best MA period that matches your groove.

How To Trade a Bullish Price Crossover

Step 1. Confirm the Crossover Before making any move, ensure the price has conclusively crossed above the moving average. So, if you’re using candlestick charts, you’ll have to wait for a full candle close above the SMA.

Step 3. Check the Trading Volume A significant increase in volume shows bullish trend strength. If not, then tread carefully, as your chances of acting on a false signal are much greater (and this depends on the overall market context and other indicator readings).

Step 4. Determine Your Entry Point Enter a long position after confirming the crossover and other signals. The exact entry point might vary based on personal strategy. Some traders prefer entering immediately upon confirmation, while others might wait for a breakout above the crossover candle or a retest of the moving average as support.

Step 5. Set Your Stop-Loss Place your stop-loss slightly below the SMA or the most recent swing low. This step ensures limited loss in case the crossover was a false signal.

Step 6. Determine Your Profit Target Set a take-profit based on a resistance level, a measured move, a trailing stop, or any strategically determined target approach. You want to catch as much upside as possible while minimizing your downside risk.

Example of Trading a Moving Average Crossover

When TSLA prices crossed above the 20-day SMA, the RSI, and Stochastic Oscillator confirmed the bullish change in momentum. Entering a long position for this first trade would have yielded a favorable result, as we exited the position once prices closed below the 20-day SMA.

The second entry point was “correct” based on this method, but you might have been stopped out if you strictly followed the rules. This is where you have to stop and think whether a secondary context might help clarify the opportunity. You could plot a Fibonacci Retracement tool from the January bottom to the February swing high. The favorable “buying range” was between the 38.2% and 61.8% retracement window. If you had sold your position when prices crossed below the 20-day SMA, you would have lost money. However, this would have been unnecessary, given the perspective provided by the Fibonacci retracement tool.

The next trade would have been favorable, as the stock’s price is above the 61.8% Fib level. And as you can see, the trade itself, once you closed the position when prices crossed below the 20-day SMA, yielded a good return.

How To Trade a Bearish Price Crossover

Step 1. Confirm the Crossover Before making a move, ensure the price has conclusively crossed below the moving average.

Step 2. Check Supporting Context and Indicators Look for confluence with other technical indicators. For example, the RSI might indicate the asset is not yet oversold, or the Stochastic Oscillator could be showing a bearish crossover of its own. If the SMA is falling, it’s a bearish sign; but if the MA is rising, you should have a reason to take a bearish contrarian position.

Step 3. Check the Trading Volume A significant increase in volume shows bearish trend strength. If not, then tread carefully, as your chances of acting on a false signal are much greater (and this depends on the overall market context and other indicator readings).

Step 4. Determine Your Entry Point You can sell your long position or enter a short position after confirming the crossover and other signals. The exact entry point might vary based on personal strategy. Some traders prefer entering immediately upon confirmation, while others might wait for a breakout below the crossover candle or a retest of the moving average as resistance.

Step 5. Set Your Stop-Loss Place your stop-loss slightly above the SMA or the most recent swing high. This step ensures limited loss in case the crossover was a false signal.

Step 6. Determine Your Profit Target Set a take-profit based on a support level, a measured move, a trailing stop, or any strategically-determined target approach. You want to catch as much downside as possible while minimizing your downside risk.

CAVEAT: When going short, your risk is technically unlimited (unlike going long). So be extra careful when shorting stocks.

Example of Bearish Price Crossover

In the hypothetical example above, there are three short trades, but not immediately when price crossed below the 20-day SMA. The entry criteria were filtered by placing a sell-stop order upon a break below each swing low.

Imagine setting your stop loss at the top of the previous swing high. If you had set your profit target at 100% of the risk (swing high to entry point), each trade would have been profitable, but you wouldn’t have caught the larger swing.

If you decided to exit your short position when prices crossed above the 20-day SMA, the first and third trades would have yielded a profit, while the second would have been a break-even or a loss (once you factor in trading costs and commissions).


A Few Potential Pitfalls to Consider

Beware False Signals. Markets can be noisy, and not every crossover indicates a bullish or bearish trajectory. This is especially true in sideways markets, where you’ll likely get whipsawed. So, pay attention to the broader market conditions and use other indicators to confirm your bullish or bearish convictions.

Lagging Indicator. Since moving averages are based on past prices, they lag the market. When a crossover is confirmed, a significant part of the movement might already have happened. So, be flexible here, make aggressive entries when necessary, but always manage your risk when you do so.

Market Conditions. Crossovers work best in trending markets, bullish or bearish. In sideways markets, particularly volatile ones, crossover signals are more uncertain and less reliable.

Get an Edge

Capitalizing on price-to-moving average crossovers can give you an edge in spotting shifts in market momentum. While this strategy offers a systematic approach to exploiting these shifts, you should remain vigilant.

Not every crossover will work. False signals will sometimes mislead you into taking a bad trade. And that’s why you use other technical indicators and pay attention to the broader market context.

Also, by sticking to a disciplined risk management approach, you’ll be better positioned to avail the opportunities moving average crossovers present. As with all trading strategies, stay flexible and adaptive. And try to identify opportunities that offer greater rewards than risks.

PreviousGuppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s HandNextTrading the Bounce: Finding Support and Resistance in Moving Averages

Last updated 11 months ago

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Step 2. Check Supporting Context and Indicators Look for confluence with other technical indicators. For example, the (RSI) might indicate the asset is not yet overbought, or the could be showing a bullish crossover of its own. If the SMA is rising, then it’s a bullish sign; but if the SMA is falling, you should have a good reason to take a bullishly contrarian position.

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Stochastic Oscillator
Trading moving average crossovers in StockCharts
Trading moving average crossovers in StockCharts