Moving Average Cross

The moving average is an element that obtains the information about two moving averages.

A moving average is a line and every point of this line is an average of the Price of the last values

Each has a different value depending on the periods. When the period is short, it is called a fast moving average because it considers only the Price average of close periods so it tends to move according to the Price.

However, when the period is large, it is called slow moving average since it considers a wider range of prices and the last Price movements does not have such a big impact on the average.

In a moving average cross, when the fast average surpasses the slow one, it is considered as a bullish signal. When the fast average falls short of the slow one, it is considered as a bearish signal.

Apart from using this indicator as an entry signal, we can also use it as a filter. While the fast moving average is above the slow one, bullish positions are filtered and the other way round.

We can see the difference between a signal of a cross and a signal of a filter in the following image.

The fast moving average crossed over the slow one can give a signal of buying or selling (by default, buying)

The fast moving average crossed below the slow one can give a signal of buying or selling (by default, selling).

The moving average can be set up according to the period (slow and fast), the type (simple, exponential…) and the timeframe.


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