technical analysis

Right way to use Moving Average crossover

Daksh Murkute | | |

You’ll hear a lot of traders saying that the price is bullish or bearish because there has been a moving average crossover that happened. But, what does it mean?

 

Do you straight away enter and go long or short accordingly, when the moving averages crossover? Is this the right way to use them in trading?

 

In this blog post, I’m going to cover all of this in the blog post, so stick around till the end.

 

I’ll tell you what moving average crossovers are and the right way to trade them. Let’s get started now.

Contents

 

 

What is moving average crossover?

So moving averages are technical indicators that give us the average of the price over a period of time.

 

Moving average crossovers is a method that traders use in trading which involves using two moving averages at the same time.

 

One moving average would be of a shorter length while the other would be of a longer length.

 

What is moving average crossover?

 

As the term crossover suggests, we look for the moving averages to cross each other and that happens when the shorter length moving average crosses the longer length moving average.

 

When the shorter length moving average crosses the longer length moving average to the upside, it is a bullish crossover. When it crosses it to the downside, it is a bearish crossover.

 

I have already uploaded several blog posts on moving averages and things you need to know about them, so do check those out too.

 

 

Should you take entries when the moving averages cross?

 

Should you take entries when the moving averages cross?

 

I’m sure by now you know what moving average crossovers are and tell me, should you take entries just when the moving averages cross each?

 

From the chart that I’ve shown up here, you can see that if you entered when the moving averages crossed, you’d have your stop losses hit both times.

 

Yes, sometimes this approach will work and you will make some money, but that will be the case only in trending phases, but in the ranging phases, you’ll get burned.

 

So finally, you should not trade moving averages crossover this way. Don’t enter straight away when you see a crossover.

 

You should mainly look at moving average crossovers as a tool for trend establishment and should use other tools or methods to capitalize on this trend.

 

 

Right way to trade moving average crossovers

The best way to use moving average crossovers in trading is to wait for the price to retrace back to the moving averages, and then only should you look for opportunities to take an entry.

 

There are so many tools, indicators, methods that you can use here. You can even use the order block strategy here, currency strength meter, and if you know how to use market depth then you can use that here too.

 

But I’m going to show you some simple and highly probable methods that you can go on and use right away.

 

The first method is to look for the candlesticks to pullback into the moving averages.

 

Right way to trade moving average crossovers

 

Just after the retracement happens, wait for the candlesticks to close out of the moving averages. This indicates that the trend is healthy and it is continuing. That’s where to enter.

 

Another method that you use is to look for a trendline break just when the price is retracing.

 

Right way to trade moving average crossovers

 

As you can see in this chart, the price retraced a bit towards the shorter length moving average, there was a trendline forming, and it eventually broke the trendline. That’s another way of taking entries.

 

Finally, you can use the Fibonacci Retracement tool to help you in taking perfect entries.

 

Right way to trade moving average crossovers

 

Here, you’d wait for a crossover, in this chart, it’s a bearish crossover. Then you’d plot the Fibonacci Retracement tool from the highest point to the lowest point, and then wait for the price to retrace to one of the Fibonacci levels.

 

In this case, the price came back to the 38.2% level and that’s where you can take entry and capitalize.

 

 

Now, these were just three very commonly used methods to trade moving average crossovers and I’m sure there are traders out there that have developed their own distinct methods.

 

Through this blog post, I wanted to make you aware of this and I want you to go back to the charts and come up with your own methods to capitalize on these moving average crossovers.

 

 

Do you use this in trading?

So, do you already use moving average crossovers in trading? If yes, then great, what’s your strategy?

 

If not, then I believe that after reading this blog post you actually start to consider using it.

 

Don’t forget to share this blog post with others and let them also know about this method of trading.

 

Feel free to ask me any questions in the comments section below and I’ll get back to it at the earliest.

Comment Section


Join our SUBSCRIBERS ARMY NOW TO get the latest trends

updates, techniques, methods about Forex Trading

Change Your Financial
Fate State Life Fate State Life