Moving Averages

A simple approach to generate entry and exit signals is the use of Moving Averages. A moving average is a line that smoothes out price action. The calculation of the indicator is relatively simple: the price of the past number of days is added together and then divided by the number of days, (9 day simple moving average on the close = addition of the ‘closing price’ of all 9 days, divided by 9). There are faster and slower moving averages. The faster is considered to be up to 10 days, whereas the slower moving averages are 20 days and over. When combining a faster and a slower moving average together, the crossover of these two gives entry and exit signals. In the image below, traders can enter when the faster 9 day MA (blue/thinner line) crosses above the slower 21 day MA (red/thicker line), and sell when the faster MA crosses below again. A detailed example of a trading plan that uses MA crossovers can be found here. Version 2.0 < Prev   Next >