Moving-average crossover

The idea

Use two averages of different speeds. When the faster one crosses above the slower one, recent prices are rising faster than the longer-term pace, which some traders read as the start of an uptrend.

Indicators and settings

SMA 20 (fast) and EMA 50 (slow) on the daily chart. Other common pairs are 10/30 and 50/200.

Entry rule

Consider a long when the 20 SMA closes above the 50 EMA and price is above both lines. Wait for the candle to close; do not act on a cross that is still forming.

Exit rule

Exit when the 20 SMA closes back below the 50 EMA, or trail a stop under recent higher lows.

Stop-loss and risk rule

Place the initial stop under the most recent swing low, or about 2 × ATR below entry. Size the trade so the stop risks 1% or less of the account.

Best conditions

Markets that trend for weeks or months, such as strong index or large-cap moves.

Pitfalls

• Averages lag, so entries and exits come late.
• In sideways markets the lines cross back and forth and produce many small losses (whipsaws).
• The exact periods are not magic: test several before trusting any.