Moving Average Crossover

Moving average crossover is a common technical indicator used by many traders. This technique uses Moving Averages of different window lengths (time periods). Crossover occurs when a short-term Simple Moving Average crosses a long-term Simple Moving Average.

A buy signal is generated when the short-term SMA crosses above the long-term average from below. While a sell signal is triggered when the short-term average crosses below the long-term average from above.

Let us understand the signal generation with the help of the following example:

If we look at the long-term 200-day SMA, it is in an uptrend. This is often interpreted as a signal that the market is bullish. When the 50-day SMA crosses above the 200-day SMA, a buy signal is generated, so we will be trading for the uptrend. Conversely, a trader might consider selling when the 50-day SMA crosses below the 200-day SMA.