Moving Average Crossover

Before reading this article, be sure to be familiar with what moving averages are and how to read them.

Most of the time, a user will have more than one period of moving averages in their charts… usually 50 and 200. Obviously based on your time frame, depends on how high or low you set your moving average periods.

While we already know about using moving averages as instances of support and resistance, there are other technical indicators that multiple moving averages can give off. The best is example is when moving averages crossover each other.

There are basically 2 meanings behind this:

1. Its bullish when lower moving averages crossover higher moving averages. Example: 50 SMA crossing over 200 SMA.

2. Its bearish when higher moving averages crossover lower moving averages. Example: 200 SMA crossing over 50 SMA.

As you can see, this is pretty much common sense. Obviously, if the 50 SMA is crossing the 200 SMA, then that means the average over the last 50 days is faster than the prior 200; thus, a bullish sentiment is released.

As you can see in the chart above, once the 50 SMA crossed over the 200 SMA, the stock really took off and increased in price.

It is important to note that moving average crossovers are used to purely determine trend, and not part of determining respective price targets.