How To Use The Moving Average Crossover Trading Strategy To Make Profitable Investment Decisions

No matter what investment vehicle you’re using or what asset you’re investing in, chances are that you understand the importance of strategy. At the end of the day, the strategy or strategies that you use will largely dictate your profits or losses in the market. Today, we’ll talk about one of my favorite strategies, the crossover trading strategy. I’ll let you in on what it is, how it works, and why it’s a great way to make profitable investing decisions.

What Is The Moving Average Crossover Trading Strategy?

The crossover trading strategy is a technical trading strategy designed to tell investors when it’s best to enter into and exit out of a position. The strategy uses two different moving averages. A moving average is essentially the average price of a financial asset over a predetermined number of days. For example, a 50 day moving average will give you the average price of a financial asset over the past 50 days. Tomorrow, the number from 50 days ago will drop of and today’s closing price will be added into the average, causing the average to consistently move.

With the moving average crossover trading strategy, you will be tracking two different moving averages, the 50 day moving average and the 200 day moving average. Every time these two moving averages cross, you get a signal that it is time to make a trade.

The Two Different Types Of Moving Average Crossovers

Ultimately, there are two different types of moving average crossovers that you’ll want to watch for, and both signal different things…

•The Bullish Crossover – The bullish crossover happens when the shorter 50 day moving average crosses over the longer 200 day moving average in the upward direction. This means that over the past 50 days, momentum upward has been stronger than over the past 200 days. So, moving forward, it’s more likely that the the value of the asset will head upward than downward. When you see this, it’s a great signal that it’s time to buy the stock.

•The Bearish Crossover – The bearish crossover happens when the shorter 50 day moving average crosses over the longer 200 day moving average in the downward direction. This means that over the past 50 days, momentum downward has been strong than what we’ve seen over the past 200 days. Ultimately, this signals that the value of the financial asset will fall ahead. So, the bearish crossover is a great signal for when it’s time to sell.

Why These Are Great Signals For Profitable Investment Moves

At the end of the day, while there will be curve balls thrown in the market, movement tends to repeat itself. Therefore, by following technical trends and making moves based on what generally happens when we see signals like crossovers, we can be more effective when making our own predictions in the market. The bottom line here is that when we trade or invest, our ultimate goal is to turn a profit when we make our moves. Using a solid, proven strategy when doing so will likely help you reach that goal more efficiently. There are few strategies that have the proven track record that the moving average crossover strategy has.