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Moving average crossover

A signal generated when a faster moving average crosses a slower one, used as a simple mechanical trend filter.

A fast and a slow moving average crossingA jagged price line with two smoother average lines through it; the fast average dips below the slow one on the left and cuts back above it in the middle, where a circle marks the crossing.pricefast averageslow averagefast crosses belowfast crosses abovethe slow averageAverages of recent closes; the fast one reacts sooner than the slow one.
Fast and slow moving averages crossing. A moving average is the average of the last few closing prices, redrawn each period. An average over fewer periods turns sooner than one over many, so the two lines cross whenever the recent pace of the market changes.

The rule is trivial: go long when the fast average crosses above the slow, flat or short when it crosses below. The 50 and 200 day version produces the widely reported golden-cross and death-cross.

Crossovers are honest about what they are: a lagging confirmation that the average price over a short window has moved past the average over a long one. In sustained trends they keep you in, which is the whole point of trend-following.

In ranges they are close to the worst possible tool, flipping repeatedly and producing textbook whipsaw. Most attempts to fix this add a filter, such as requiring adx above a threshold or a minimum separation between the averages, which reduces trade count rather than improving the underlying signal.

Related: golden-cross, death-cross, trend-following, whipsaw, adx

Educational only, not advice. Spotted an error? Post in Site Feedback.