Fast Moving Averages Crossover Strategy -

Fast Moving Averages Crossover Strategy

The most common way opted by the trader to know the moving average is by using the moving average crossover. This crossover occurs when the two different moving averages based on the certain differentiating degree are plotted .This plot does not provide information the incoming direction but displays the trend of the stock. The occurrence of this crossover happens when an average moving fast crosses below or above the slow moving average termed as bearish crossover and bullish crossover respectively.

The Importance Of The Fast Moving Averages Crossover Strategy

The fast moving averages crossover has a shorter expiry window when compared to others. The buy signal is generated when in the two moving averages, the faster moving average crosses above the slower moving average i.e. when the bullish crossover occurs. The count of the number of signals which gets generated depends on the length of the moving averages. On the similar node the sell signal is generated when the faster moving average crosses the slower moving average i.e when the bearish cross over occurs. Always note that the shorter moving systems will be faster and will be generating more signals. The shorter (faster) moving signal also generates a number of false signals as compared to the longer (slower) moving signals.

Here is the example explaining to use this effectively on what is the ideal time to enter the trade and when to close it. This system as all other systems is used on all pairs, with a trading duration of 1 hour (H1) and 15 minute (M15). For understanding lets use indicator as 10,20 and the 40 Exponential Moving Average (EMA). So when the fast EMA (10) traverse path through slower moving EMA (40) then it is idle to buy or sell depending on the crossover. The point to note is not to get deviated by the fake signals getting generated so to avoid that wait for the candlestick for EMA (15) to be closed in reverse direction. This is the idle time to enter the trade.

Close Overview

Now let’s look at when to close the trade. So this fast moving average crossover strategy provides few options. The first one is to close when EMA (10) returns and it reaches EMA (40) and the other one when it intersects EMA (20).

So the use of this strategy is recommended when the market is trending displays the huge price breaks out or the prices are in trending period. While using this strategy one should always remember that it provides you the visibility of the current market situation but does not tell about the future situation. The purpose which with moving average comes in is to provide the visibility on the price action and to assist the trader in identifying the price swing, and its direction of swing. These are also called as the lagging indicator which are plotted as well as calculated by taking the average of last “X” periods. To illustrate, if the trader uses 30 period moving averages, then it will be plotted on the chart with the use of the average value of the closing price of the last 30 candles.

So this Moving average crossover system is very effective when they are used in collaboration with some of the technical analysis of the asset like candlesticks, volume, patterns and many other. When the technical analysis is done effectively than this cross over system will yield you high profit margins. This system is very simple to use and one of the better systems assisting trading. Effective use of this system puts you on the winning side and maximizes the profit. It is definitely going to bring huge profit if this is used at the right time, after doing right analysis and with the correct state of mind.

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