How do you use moving average crossovers to enter trades?

Moving Average crossovers is  one of the ways of trading using more than one Moving Averages.

This happens when the faster Moving Average crosses below the slower Moving Average giving a sell signal and when the faster Moving Average crosses above the slower Moving Average giving a buy signal.  let’s have a look at the Moving Average cross over as indicated on the chart below.

Taking a look at the above chart, you will realize that every time there is a crossover, we see a shift in the direction of the trend. There fore Moving Average crossovers are not only used to identify trade signals but also to determine that a trend is coming to an end or is about to reverse. So in case you are having an open position and you notice a Moving Average crossover , it is a warning that a trend might be coming to an end. Take a chance to exit trade.

The fast Moving Average has a tendency of making many fake out signals but when combined with a slower Moving Average most of the error is corrected. 

The moving average crossovers work better in volatile/trending markets than  ranging market sessions. With ranging markets it tends to pose a lot of crosses which are likely to be fake outs and may lead to premature losses when traded.

The better way to trade moving average crossovers is to combine it with other technical analysis patterns like candlesticks, momentum indicators ,trend line or Fibonacci retracements.

Like any other strategy, know how to set your stop levels to help you limit losses in case a trade fails and set reasonable profit targets. We will learn more about risk management in the later sessions.

Let’s have a look at another example below.

On the chart below, the cross overs are the entry signals and the immediate highs/lows are the stop loss levels

 

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