BEST Moving Averages for Cross Trading Strategies
Moving averages are technical trading tools that can help identify trends over different time frames. They can replace opinions and predictions for making trading decisions by being used as signals. Moving averages can identify trends and swings in price action in real time and also signal range bound markets when they become flat without a directional curve.
Moving average filter
Moving averages are technical trading tools for capturing stock market trends.
Moving averages are price action filters that can identify a trend which side of a moving average price is trading.
A vertical moving average can show that a chart is in a trend, while a horizontal moving average can show that price action is moving sideways within a trading range.
The slope of a moving average can visually show the magnitude of a trend direction.
Moving averages can act as key support or resistance levels in trading ranges and trends.
Moving average indicator
A moving average is a line on a chart that represents the average price over a specific time period, it changes as the price changes in the time period it represents.
Moving averages are technical tools that traders use to identify trends on charts.
A simple moving average is just the average of the prices in the time period, an exponential moving average gives more weight to recent prices and changes faster in reacting to new prices.
Moving averages can smooth out price action for trending trades.
Moving average crossover systems can further smooth volatility to hold positions during a trend.
Moving averages are for trending trades and are not as useful during sideways markets.
Billionaire Paul Tudor Jones and multi-millionaire Ed Seykota both incorporated moving averages into their successful trading systems.
Moving averages are quantified signals unlike trend lines which can be discretionary and opinion based.
Moving averages can be backtested for their viability as profitable signals.
Moving averages can be used as entry signals, stop losses, profit targets, trailing stops and discretionary trading tools.
Moving Average Crossover Strategy
A moving average crossover signal occurs when you use both a short-term moving average and a long-term moving average on the same chart. A crossover signal is generated when the moving averages fall above or below each other. A trader buys when the short-term moving average crosses the longer-term moving average and sells when the short-term moving average crosses below the longer-term moving average instead of the price crossing above or below a single moving average as a signal from the short-term moving average itself becomes the signal line when it crosses the longer moving average. The best thing about moving average crossover signals is that they can capture trends and swings in price action while filtering out a lot of the volatility.
Using backtesting software, you can set up an entry signal for when a short-term moving average closes on a longer-term moving average. Next, you can set up an exit signal for when the short-term moving average closes below the longer-term moving average.
I have backtested moving average crossovers which I have found most useful in trading. All of these backtests were done on the QQQ ETF as I found it to be the best ETF for momentum and trend trading using moving average strategies.
Here are some of the most popular ones I’ve looked at.
5-Day / 20-Day EMA Crossover: Flying Eagle Crossover
Crossover EMA 5 days / 30 days: Flying Falcon Crossover
8 days / 21 days ema Scott Redler’s favorite crossover
10 day / 30 day ema crossover: Flying squirrel crossover
Crossover ema 10 days / 50 days: Flying Dragon Crossover
50 days / 200 days ema Golden Crossover
Here are the results from April 1999 to July 2022 on QQQ historical data:
Backtesting of the data carried out on TrendSpider.com
They work because they create good risk/reward ratios by letting the winners run and cutting the losers short. They also place a trader in a position to follow the general trend within their time frame. They give exit signals when trends end and also signal when it’s time to step back into a rising chart.
If you are interested in trading price action using moving averages, you can check out my bestselling book on moving averages here or my other trading books on Amazon here. I have also created online trading courses on my NewTraderUniversity.com website here. My educational resources can save you time and money on your trading journey.