Moving Average Trading Strategies

Moving Average Trading Strategies


  • Three ways to trade with moving averages are crossovers, support & resistance levels, and ribbons
  • Crossovers can help identify entry and exit points
  • Support and resistance levels help identify turning points in trends

Moving averages are one of the most popular technical indicators used by traders and investors. Even fundamental analysts use them. You can hear talking heads mention them on financial media channels, they're mentioned in popular financial sites, and are found in just about every stock charting software.

Moving averages are easy to slap onto SharpCharts, StockChartsACP, or P&F charts. But how do you use moving averages to exit and enter trades? There are different ways to trade with moving averages. We'll look at how to make entry and exit decisions with moving average and/or price crossovers, how to use moving averages as support and resistance levels, and how to identify trends and/or trend reversals using moving average ribbons.

Trading Crossovers

There are two ways to use crossovers: price and moving average crossovers.

Price Crossovers

When the price moves above a moving average, it could be a bullish signal. When price moves below a moving average, it could be considered a bearish signal. You've probably heard the adage, “The trend is your friend until it bends.” Based on this premise, you could combine a price crossover with the major trend so your trading aligns with the trend.

Learn More» How To Trade Price-to-Moving Average Crossovers

Moving Average Crossovers

Moving average crossovers occur when one moving average crosses another. Say you have a 50-day simple moving average (SMA) and a 100-day SMA overlaid on your price chart.

A bullish crossover is when the shorter moving average crosses above the longer one; in this case, it's when the 50-day SMA crosses above the 100-day SMA, called a Golden Cross. A bearish crossover, or a Death Cross, is when the shorter moving average crosses below the longer SMA.

Moving average crossovers can also be used for short-term trading. The 5-8-13 EMA crossover is a popular strategy among short-term traders. The crossovers between the three exponential moving averages (EMAs) can indicate price moves in the near term.

Support and Resistance

Moving averages can be used as support and resistance levels. Traders often use the levels to identify entry and exit points.

Learn More» Finding Support and Resistance in Moving Averages

Moving Average Ribbons

When you plot a bunch of moving averages on a price chart, the appearance resembles a ribbon moving across the chart. You can use Moving Average Ribbons to identify long and short-term trend direction, trend strength, and trend reversals.

The width of the ribbon, that is, the distance between the moving averages, also helps to identify trend strength, the end of a trend, and the beginning of a trend.

There are different ways to apply Moving Average Ribbons. One popular method is the Guppy Multiple Moving Average, which combines 12 exponential moving averages.