Moving Average Crossovers

Moving average crossovers occur when a faster moving average rises above or false below a slower one. For example, when a 13-day SMA (simple moving average) rises above a 100-day SMA, or when an 14-day EMA falls below a 50-day SMA, we will be studying a moving average crossover. In this type of crossover, the signal line is not static, and must be provided by the trader manually. This flexibility makes MA crossovers much more adaptable to changing market conditions, and in trending markets, MA’s can be greatly useful for our trading choices.
MA crossovers can be useful for both range trading, and trend following, but since moving averages generate smoother and more reliable signals in trending markets with relatively low volatility, the most successful use of the MA crossover is also in a trending market. Many traders choose to use a simple moving average for the slower MA, and an exponential moving average for the fast component. But this is not a necessity. Depending on the preference of the trader with regard to indicator sensitivity to price action, an EMA can be used or discarded altogether.
In this section we will examine five different strategies based on MA crossovers.
Moving Average crossovers with a breakout scenario
In this hourly chart of the GBP/CHF pair, we see an approximately three-day long range pattern developing between 1.5851 and 1.6041 price levels, with the 13 hour MA depicted in red remaining consistently below the yellow 100-hour MA for the entire duration of this period. The price fluctuates between the temporary support and resistance lines (shown as red lines on the graph), and the faster 13-hour moving average settles to a very quiet consolidating pattern in the same period. Neither the MA not the price action gives any meaningful signal with respect to the future, until the eventual breakout occurs.
At around 5 am on the 12th March, we see a sudden spike in the price action, which quickly causes the more sensitive 13-hour simple moving average to spike up also and eventually to rise above the yellow 100-hour simple moving average, and a crossover occurs, and after the price keeps rallying powerfully, reaching riught up to 1.68 eventually. In this scenario, the significance of the crossover is amplified by the long duration of the preceding consolidation pattern, and the quiet and subdued price action. Since markets rarely remain so quiet for a protracted period of time, the eventual crossover creates a very reliable signal for the violent upswing of the price.