How To Trade - Moving Average Crossover and How Does It Work

Moving average crossovers are a common way traders use Moving Averages. A crossover occurs when a faster Moving Average crosses either above a slower Moving Average (i.e. a longer period Moving Average) which is considered a bullish crossover or below which is considered a bearish crossover.

It is used by forex traders for three things:

• Identify the beginning of a new trend
• Measure the sustainability of the new trend
• Identify the end of a trend and signal a reversal

The second type of crossover occurs when a short-term average crosses through a long-term average. This signal is used by traders to identify that momentum is shifting in one direction and that a strong move is likely approaching. A buy signal is generated when the short-term average crosses above the long-term average, while a sell signal is triggered by a short-term average crossing below a long-term average.