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Moving Average Crossovers

Moving average crossovers are some of the simplest and dated technical trading systems, however, they have stood the test of time and crossovers in general have found their way into other indicators.  This is how a crossover works.

Two moving averages with different periods are calculated.  Typically one moving average is considered the "slow line" while the other moving average is considered the "fast line".  The slow line contains the larger number of periods while the fast line, the shorter number of periods.  Whenever the fast line crosses over the slow line, this is an indication to buy.  Below is an example of a 50 period SMA (dark blue line) crossing over a 200 period SMA (aquamarine line).

smacrossover

If this asset was purchased at the bar after the crossover, a substantial run up immediately followed.  Of course, this isn't always the case, but many will buy and hold at this point.  Subsequently, when the fast line crosses the slow line from the top, this may be a sign to sell a long position.