

Moving average crossovers

Let’s talk about the Golden Cross and the Death Cross.

No, we’re not opening a deck of cards and telling your fortune. These colorful terms refer to patterns you probably use every day in your trading but don’t refer to by these names. Along with their many cousins, they comprise a whole division of technical analysis. You might know them better as moving average crossovers.

Moving averages emit vital market data, but all of them exhibit one common limitation: They lag current events. By the time a 20-bar average curves upward to confirm a trend, the move is already underway and may even be over. While faster incarnations, such as exponential moving averages, will speed up signals, all of them ring the trading bell way too late.


Averages display all the common characteristics of support/resistance. For example, one average will often bounce off another one on a first test, rather than break through right away. Then, like price bars, the odds shift toward a violation and crossover on the next test. Alternatively, when one average can’t break through another average after several tries, it sets off a strong trend-reversal signal.



Crossovers add horsepower to many types of trading strategies. But try to limit their use to trending markets. Moving averages emit false signals during the “negative feedback” of sideways markets. Keep in mind these common indicators measure directional momentum. They lose power in markets with little or no price change.

Persistent range-bound markets limit the usefulness of all types of moving average information. All moving averages eventually converge toward a single price level in dead markets. This flatline behavior yields few clues about market direction. So stop using averages completely when this happens and move to oscillators, such as Stochastics, to predict the next move.

Alan Farley is editor and publisher of the Hard Right Edge, a comprehensive resource for trader education, technical analysis and short-term trading techniques. He is author of The Master Swing Trader and popular columnist for

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