Let’s take a look at how to use moving average crossovers to enter trades.
So far, you have learned how to determine the trend by plotting some moving averages on your charts.
You should also know that moving averages can help you determine when a trend is about to end and reverse.
As trend traders, you want to recognize and ride the trend for as long as possible.
You have to know when to get in AND when to get out.
A trend can be defined simply as the general direction of the price over the short, immediate, or long term.
Some trends are short-lived, while others last for days, weeks, or even months.
But you don’t necessarily know how long a specific trend will last.
A technical tool known as a moving average crossover can help you identify when to get in and out.
A moving average crossover occurs when two different moving average lines cross over one another
Because moving averages are a lagging indicator, the crossover technique may not capture exact tops and bottoms. But it can help you identify the bulk of a trend.
A moving average crossover system helps to answer these three questions:
- Which direction might the price be trending (if at all)?
- Where might be a potential entry point for a trend trade?
- When might a trend be ending or reversing?
All you have to do is plop on a couple of moving averages on your chart and wait for a crossover.
If the moving averages cross over one another, it could signal that the trend is about to change soon, thereby giving you the chance to get a better entry. By having a better entry, you have the chance to bag more pips!