Best Moving Average Crossover For Day Trading

Best Moving Average Crossover for Day Trading

Moving averages are a commonly used technical indicator in the stock market. Traders use moving averages to identify trends in price fluctuations, smoothing out short-lived spikes from announcements for securities or indexes.

Many different types of moving averages use different calculations over different time periods that are essential to revealing information for traders.

Crossovers are a short-term moving average above a long-term moving average that indicates an upward momentum in a stock. The same is true with a short-term average below a long-term average.

The Golden Cross Strategy

The golden cross strategy comprises two simple moving averages, the 50 period SMA and the 200 period SMA. This occurs when the 50 SMA crosses over the 200 SMA on the upside. Traders evaluate this trend daily.

When the short-term moving average, the 50 period SMA, crosses the longer-term 200 period SMA to the upside, the golden cross has occurred, and we can consider a bull market.

The value of the golden cross strategy is that you can see a short-term calculated average increase faster than a long-term average.

When using moving averages, you may experience issues such as whipsaw.

Whipsaw is when a price does not have a sustained direction, and it swings back and forth, and the moving averages move as they cross. This can result in the loss of profits.

The death cross occurs when the 50 SMA crosses below the 200 SMA, signaling it is your time to exit.

The Three Moving Average Crossover Strategy

Studies have shown that exponential moving averages (EMAs that weigh more recent prices heavier than earlier prices) perform better than SMAs (Which weigh the prices in a timeframe equally).

Among short and long-term EMAs, crossovers averaged the largest returns.

The three moving average crossover strategy uses three exponential moving averages of various lengths. Moving averages can help frame the market for a trader. A more simple moving strategy is best for day traders.

What are the benefits of using a triple moving average strategy?

You can see the long term trend direction and evaluate if the short term trend is in a better position

You can evaluate a short-term trend to determine if it will be a trend or a counter-trend trade.

The three EMAs vary in length, the 9 period EMA, the 21 period EMA, and the 55 or 50 period EMA.

  • If the 55 EMA is below the 9 and the 21, the trend is considered to be up and if it is above the trend is down.
  • If the 21 is below the 9 and above the 55, this is considered an uptrend, and if the 21 is above the 9 and below the 55, that is a downtrend.
  • If the 9 EMA crosses over the 21 while above the 55, this is an uptrend. If it crosses below the 21 while already below the 55, that is a downtrend.

The biggest problem you might experience with moving averages can be the price moves too far, too fast.

Using the separation of averages and the distance price from the averages, you can get a good idea of what the momentum will look like.


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